UAE and Saudi Arabia have presented budgets where clearly the non-oil sectors are pulling their weight. This is what other regional economies must be doing too. Image Credit: Shutterstock

After years of structural financial and economic reforms in the GCC, it’s time to assess their collective impact for these nations amidst global changes affecting all regions. Multilateral organizations have lauded these reforms, with the World Bank’s Vice-President for the Middle East and North Africa Ferid Belhaj being the latest to do so.

He urged other countries in the region to emulate Saudi Arabia, the UAE, and other Gulf states in implementing deep reforms that extend beyond the energy sector. The GCC’s reforms, however, have sparked a heated debate from within, causing some countries to implement them unevenly. Nonetheless, the UAE and Saudi Arabia pushed ahead, resulting in higher growth rates and a thriving non-oil sector. The World Bank official has echoed these observations, emphasizing that the Saudi and Emirati models showcase a new economic and development approach, breaking free from patterns that no longer hold good.

This is true to a great extent. The previous development strategy, heavily reliant on oil revenues for financing annual budgets and all kinds of expenditures, has reached its limits and is no longer sustainable in the face of global changes, especially in the energy sector.

Lopsided reforms

Continued dependence on oil revenues will present significant challenges, and the negative effects are already evident in countries whose fiscal policies have remained unchanged despite recognizing the need for reforms that have proven successful elsewhere.

However, populist legislative institutions are exerting internal pressures that impede reform moves. Due to the significant differences in economic development and reform efforts among GCC countries, it is not possible to make a general assessment of their financial and economic reforms.

However, some countries have made notable strides, resulting in high growth rates that surpass not only their regional counterparts but also those put in by other nations. For instance, these countries have achieved annual growth rate of 8.5 per cent, and their economies have become more diversified, as reflected in their latest budgets.

Reducing influence of oil on state exchequers

The UAE, for example, is making remarkable progress towards issuing a federal budget that relies less on oil revenues, while the contribution of non-oil sectors to Saudi Arabia’s has increased significantly. On the other hand, some countries continue to rely heavily on traditional oil and gas revenues due to weak or nonexistent financial and economic reforms.

While some of them can sustain themselves for some time through hydrocarbon exports, others are already experiencing challenges as they have failed to make the necessary moves to implementing crucial financial reforms. There is also a third group that has implemented some useful reforms.

However, their financial capabilities are limited, and this has restricted the extent to which these reforms could be deepened due to their potential impact on the living standards of low-income groups. Nonetheless, these limitations do not prevent these countries from continuing to pursue change.

It is possible to develop policies that align with these reforms while maintaining living standards for all. This can be achieved through financial transparency and economic diversification programs, although progress in these areas has been slow compared to the first group of countries taking rapid and consistent steps in this direction.

Towards a greening of the economy

The GCC countries are undergoing a transitional phase as they shift from the old development pattern. These countries are focused on establishing advanced infrastructure and promoting economic diversification and sustainable development.

One area of particular focus is the ‘green’ economy, where several countries in the GCC have made notable progress. It is crucial to highlight the significance of working towards convergence and integration of experiences within the GCC, as well as generalizing successful models.

Failure to do so could result in increased disparity between the components of the GCC economies, which may hinder economic integration and delay the exit of certain countries from the old development pattern. This could lead to an inability to adapt to emerging challenges.