Our region is expected to witness growth during the coming period on the back of rising oil prices and an improving global economic environment.
Many governments are now busy working on long-term plans in order to achieve economic diversification and modernisation. Last October, a report published by the International Monetary Fund (IMF) said the Middle East region in general is forecast to witness a growth of 2.7 per cent.
A recovery is indeed under way in the region following a prolonged spell of economic stagnation in the wake of Covid-19 impacts.
Within the Gulf Cooperation Council, the IMF projects mixed growth: 3.5 per cent in Bahrain, 3 per cent in Qatar and the Sultanate of Oman, 2.7 per cent in the United Arab Emirates, 2.4 per cent in Saudi Arabia, and 2 per cent in the State of Kuwait.
The main factor driving this growth is the increase in international oil prices during recent months – by around 50 per cent since the beginning of 2021.
At one point, buoyant oil prices neared the $85 a barrel mark. However, the outbreak of the new mutagen Omicron led to a decline in demand for oil, closing the price at $77 a barrel at the end of 2021.
Resurgent prices have indeed helped the countries of the region to boost revenues amid measures to rationalise spending and support fiscal sustainability.
According to a report by Oxford Business Group, four Gulf countries have introduced value-added tax (VAT) to help bolster non-oil revenues.
The most recent was the Sultanate of Oman with a 5 per cent tax rate. Saudi Arabia, the UAE and Bahrain had earlier implemented VAT at rates from 5 to 15 per cent, while both the states of Kuwait and Qatar have yet to adopt the new tax.
The new levy is expected to generate about RO 400 million (over $1 billion) annually to the Omani government’s revenue, which is equivalent to 1.5 per cent of the country’s GDP.
In the same context, Bahrain announced its intention to double the value-added tax rate to reach 10 per cent during this year, while Saudi Arabia had previously raised this tax to 15 per cent in 2020.
The ongoing pandemic has disrupted the development strategies of countries in the region. The impact is particularly significant for countries dependent on oil exports as the main source of revenues. The fiscal positions of these countries were severely impacted as a result.
However, with the current oil price trend being sustained, prospects for the region’s economic recovery are brightening.
Nevertheless, it is imperative for countries of the region to continue to reform their economies to attract more foreign direct investment, stimulate foreign investment inflows, and enhance their competitiveness, in addition to launching initiatives to accelerate the economic diversification process.
The latter goal requires amendments to laws to allow foreigners to work in specialised technical fields, and efforts to attract domestic and foreign investments at the same time.
