Dubai: The International Monetary Fund is warning the Gulf states to speed up fiscal reforms, with its Middle East director saying on Tuesday “major adjustments” are needed.

The warning comes as $300 billion in revenue have been lost this year by Middle East oil exporters due to the sustained decline in global energy prices, according to IMF estimates. Some countries in the Middle East, including the UAE and Saudi Arabia, have introduced some fiscal changes to counter the drop in oil revenue, but the IMF says more needs to be done.

To counter a sustained low oil price, the Gulf states and other major Middle East oil producers need to make “difficult decisions,” including introducing a value added tax (VAT) and reviewing capital projects and the size of the public sector. The latter could cause some discomfort among regional governments, where especially in the Gulf States the public sector is the largest employer of nationals.

“The big challenge for the [Middle East] oil exporting countries for next year will be continue to adjust to the impact of low oil prices,” Masood Ahmad, the IMF’s Middle East director said at the Arab Strategy Forum in Dubai.

Benchmark Brent crude was trading at $37 a barrel on Tuesday, nearly 70 per cent less than the $115 a barrel that oil was selling for in June 2014. The IMF is forecasting oil prices to start increasing next year but Ahmad is warning of a slow rise.

“The increase will be gradual and will still remain relatively low for years … rising gradually to about $60 [a barrel] in about 2020,” he said.

But after a revision in government spending by the Middle East oil exports, Ahmad now sees the combined 2015 to 2020 deficit to be less than $1 trillion. The IMF had forecasted in October a combined deficit of $1 trillion, compared to a $650 billion surplus between 2009 and 2013. Ahmad did not say how much lower it would be.

He also said energy subsidies will need to be removed across the region.

In July, the UAE announced it was removing subsidies from retail petrol but as Ahmad said other countries in the region are yet to follow suit with some, including Qatar and Oman, stating publicly they will not remove petrol subsidies.

Ahmad also warned the slow down in the non-oil private sector will continue into 2016 because of heavy dependence on government spending.

Salam Fayyad, former Prime Minister of Palestine, speaking later at the forum said all Arab governments need to introduce tax reforms, which he said could be achieved within three years.

“It takes three years but it should be a general tax with no exception, a little low … We need to also put some corporate taxes, some real estate taxes,” he said.

In November, Saudi Arabia’s council of ministers approved a new tax on undeveloped urban plots that could raise $13 billion a year, according to Saudi media reports.