Oil-driven Gulf states must reform their fiscal policies or risk losing their money before running out of oil, the International Monetary Fund (IMF) said in a report published on Thursday.
According to the report, titled "The Future of Oil and Fiscal Sustainability in the GCC Region," the global oil market is changing as renewable energy sources are being employed amid growing environmental concerns. Additionally, new technologies have allowed for the supply of oil via new and old sources.
These developments have been a real obstacle for oil-exporting countries in the GCC as they account for a fifth of the world's oil production, as stated in the report. If these countries don't rebalance and restructure their economies, their financial wealth could hit rock bottom very soon.
"At the current fiscal stance, the region's financial wealth could be depleted by 2034," the IMF said in the study.
The report sheds light on the decline of oil prices in recent years. In 2014-15, the prices of oil declined by more than 50 percent, the largest drop in the past century.
"Oil-exporting countries may need to be ready for a post-oil future sooner rather than later," the report asserts.
Many oil-exporting countries are still adjusting to the effects of this oil price decline. In recent years, several GCC countries have been working to diversify their oil-dependent economies and investing in technologies that may drive their revenues upwards.
A 2019 report by artificial intelligence (AI) consultancy firm Oxford Insights in collaboration with the International Development Research Center (IDRC) found that "The UAE, Saudi Arabia, and Qatar have all shown strong commitment to developing their AI capabilities. They have been investing heavily in new technology."
If Arab countries continue down the path of full AI integration, they are expected to generate $320 billion (an estimate of 2 percent) of the global benefits of AI by 2030.
These countries aren't just investing more in tech, they are actually expanding their horizons to other sectors that haven't been invested in before.
The most high-profile effort is probably Saudi Arabia, a country that has been attempting to reduce its dependence on oil under Vision 2030. The kingdom has been diversifying its revenue basket and has already started making profits out of several sectors it seldom profited from in previous years. These include tourism, entertainment, and sports.
In September 2019, a report covering both economic and financial developments in the kingdom during 2018 revealed that Saudi Arabia's non-oil GDP (Gross Domestic Product) witnessed an increase of 2.02 percent. It was also revealed that the kingdom saw a 22-percent increase in its non-oil exports which resulted in profits of up to 236 billion Saudi riyals ($62.9 billion). Similarly, the oil sector also saw a rise in its GDP — a 3.01-percent increase to be exact as prices remained stable with inflation at 2.05 percent.
However, despite such initiatives and progress, the IMF pointed out that much of the non-oil economic activity indirectly relies on hydrocarbons through public or private spending of wealth achieved via the oil sector.
The IMF report acknowledges the efforts being made among GCC countries but worries that the "expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth. These adjustments need to be accelerated and sustained over a long period of time."
The IMF advises GCC countries to not only focus on diversifying their economic portfolio, but also raise revenue from other streams such as taxes; at the same time they're encourage to cut government spending drastically. For decades, Gulf states have used their oil-driven wealth to provide millions of citizens with government jobs and household allowances.
"Governments will likely need to downsize," the IMF warns.
According to France 24, GCC government debt rose from around $100 billion in 2014 to nearly $400 billion in 2018. Strategic changes must be implemented quickly or else GCC countries may reverse their money-generating reputation.