The Gulf countries, including Saudi Arabia and the UAE, must try to introduce a regional value-added tax as soon as possible, since even at a low rate it could raise considerable revenues, remarked International Monetary Fund (IMF) chief Christine Lagarde.
 
That reform should not be delayed, said Lagarde in a statement after a meeting with senior GCC economic officials in Doha on Sunday.

Most of the six oil exporting nations in the GCC have put in place prudent fiscal policies, and those that haven't can learn from those that have, she added.

The plunge of oil and gas prices since last year has slashed governments' energy revenues, saddling most with big deficits.

"At the moment, a large share of fiscal and export revenues in the GCC come from oil. With oil prices having declined sharply since mid-2014, export revenues are expected to be nearly $275 billion lower in 2015 than in 2014. The fiscal and current account balances in the region are deteriorating sharply, with the fiscal balance projected by the IMF to be in a deficit of 12.7 percent of GDP in 2015," she stated.

"Growth is also expected to slow, with IMF projection suggesting 3.2 per cent in 2015 and 2.7 per cent in 2016, compared to 3.4 per cent in 2014," added Lagarde.
 
According to her, the GCC countries face the challenge of lower oil prices from a position of strength.

"Prudent policies over the past decade have enabled them to build up financial buffers which avoid the need for a sudden or disruptive adjustment in fiscal policy. Nevertheless, with low oil prices expected to persist for a number of years, all GCC countries need to undertake some degree of fiscal adjustment, although the size and urgency of this adjustment varies across countries," she observed.

'Well-planned fiscal consolidation strategies need to be put in place as soon as possible and communicated so that people understand how the adjustment will take place," she added.
 
Lagarde said all the GCC countries needed to adjust their budgets further to cope with low oil prices in the longer term, and that most had introduced fiscal policies which would allow them to make those adjustments from a position of strength, limiting the impact on their economic growth rates.

"Those who have not done it can certainly learn from those who have," she said without naming individual countries.

Lagarde said governments needed to cut the growth of their current spending.

"Given the new fiscal realities, there is not room for public wage bills to grow further. We have to face that reality," she added.

The IMF chief called upon the governments to take steps to switch the focus of growth away from the public and towards the private sector.

"With some two million people likely to enter the labour force in the GCC by 2020, and given the fiscal constraints on further increasing government employment, private sector job creation needs to be stepped up. Governments are already implementing many policies in this direction, and important progress is being made," she stated.

"Nevertheless, continued efforts are needed to encourage nationals to seek employment in the private sector and for firms to hire them," noted Lagarde.
 
The IMF, she stated, will continue to deepen its relationship with the GCC through regular country visits, technical assistance, and training.

"We stand ready to support the GCC countries in any way they see appropriate as they address the challenges of lower oil prices," she added.-Reuters and TradeArabia News Service