Surging commodity prices have limited the spillovers from the war in Ukraine and the impact from tighter global financial conditions, and have allowed for a more positive outlook for GCC economies, according to IMF.

“Our analysis suggests that GCC countries will save far more resources than during previous episodes because of the fiscal and structural reforms taken in the region. In 2022 alone, the overall fiscal surplus will amount to over $100 billion, as the rise in expenditures—particularly on wages—remains contained so far,” the fund said.

“While GCC countries have benefited from higher, albeit volatile, oil and gas prices, numerous risks still cloud the outlook—notably a slowdown in the global economy. In this context, the reform momentum established in previous years should be maintained,” it added.

The report recommended implementing a comprehensive package of policies in order to respond to near-term shocks and firmly address the medium-and long-term challenges.

These policies include, “using additional revenues from higher oil prices to rebuild buffers and strengthen policy space.”

“Given the available fiscal space, targeted support for the most vulnerable can be prioritized, leveraging the progress made on digitalization.”

It also called for “keeping medium-term fiscal policy geared towards ensuring fiscal sustainability and increasing savings, through a credible fiscal framework.”

“Over the long term, this is critical to ensure equity between generations and a smooth energy transition out of fossil fuels. This can be supported through non-oil revenue mobilization and energy subsidy phase-out, which will also contribute to climate change mitigation.”

Other supporting measures include “the gradual reduction of public sector wage bills and increasing spending efficiency - for example, through continuing reforms to improve procurement and investment planning.”

The fund also said that “a proper assessment of the fiscal stance will require fully incorporating GCC sovereign wealth funds’ operations, given their role in diversifying savings from oil revenues and their involvement in national development strategies.”

The report demanded “maintaining financial sector stability, which is essential to sustaining strong economic growth.”

“As a result of high oil prices and abundant liquidity, which are facilitating credit expansion, GCC bank balance sheets are currently shielded from tighter global financial conditions. However, bank soundness should continue to be carefully monitored.”

The IMF concluded that “accelerating ongoing structural reforms, including by raising female labor force participation, increasing flexibility for expatriate workers, improving education quality, further leveraging technology and digitization, enhancing regulatory frameworks, strengthening institutions and governance, and deepening regional integration.”

“Implementing policies for sustained private sector-led economic growth and diversification will be as key as ever.”