IMF says Gulf economies really are weaning themselves off oil

Governments in the energy-producing Gulf region have made progress toward diversifying their economies away from oil by opening up to private investment and breaking the taboo of collecting taxes, the head of the International Monetary Fund said.

“There is this impression that the only reason the Gulf countries are doing well is high oil and gas prices,” IMF Managing Director Kristalina Georgieva told a conference in Dubai on Monday. “This is not true.”

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Governments that were once locked into a cycle of splurging during times of high oil prices have become more careful with spending. And Georgieva also pointed to a better environment for private investments and job creation through competition.

“They have been reforming relentlessly how they raise money and how they spend money,” she said, citing a reliance on collecting taxes in a region of absolute monarchies that have historically avoided them, and more attention to public spending on education and health.

Saudi Arabia, which saw its non-oil economy grow at the fastest pace in over a year at the end of 2022, has said it wants to use its oil windfall to accelerate projects that contribute to that shift.

The region’s largest economy is also looking to use the surplus to replenish reserves and make additional transfers to state entities including its sovereign wealth fund for local and international investments.

The United Arab Emirates, which has the Gulf’s most diversified economy, will start imposing a 9 percent corporate tax this year, a rare move in a region otherwise known for being tax-free.

The UAE has said it would slash other fees to offset the impact of the levy. Like Saudi Arabia it’s also pumped investment into sectors like manufacturing, technology and is seeking to produce cleaner fuels such as green hydrogen.

Saudi Arabia has been undergoing some of the biggest changes in decades under Crown Prince Mohammed bin Salman, who wants to use his Vision 2030 plan to overhaul the kingdom’s economy and society.

But oil still remains a major factor. Saudi Arabia’s fiscal balance mainly went into surplus last year because of the bounty collected from crude sales.

Georgieva’s comments were echoed by a senior World Bank official who singled out Saudi Arabia for its progress.

“Reforms are happening, the transition is happening,” said Ferid Belhaj, the lender’s president for Middle East and North Africa. “We need to be realistic. I guess you cannot transition from 100 percent oil dependence to zero and build your whole economy on renewable energy.”

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