GCC countries pursue reforms to diversify and to reduce vulnerability to oil price fluctuations
| Author | Abdelali Jbili |
| Position | IMF, Middle Eastern Department |
| Pages | 197-199 |
Page 197
Members of the Council of the Arab States of the Gulf (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)— hold a sizable portion of the world’s energy resources and are major players in the global financial system. As macroeconomic stability and improvements in health and literacy attest, they have largely used their wealth wisely. But the volatility of their income from oil and gas poses a key test for their policymakers. This article reviews the GCC’s performance, weighs the challenges ahead, and outlines the reforms needed to ensure stronger growth and more stable and vibrant economies.
The GCC countries are endowed with sizable energy resources. As a group, they account for 44 percent of the world’s proven reserves of crude oil and 15 percent of natural gas reserves. Their crude oil production and exports represent about one-fifth of the world’s total output and one-fourth of exports. The GCC countries are also key players in the global international financial system, with large private and official assets invested in major financial markets. They are also major contributors to development assistance (either bilaterally or through multilateral institutions). On a regional level, the GCC countries account for a large share of output and total trade in the Middle East and North Africa (see chart) and are an important source of employment from the region and of transfers of worker remittances.
Benefiting from favorable terms of trade in the 1970s and much of the 1980s, the GCC countries used their sizable oil income to build modern physical infrastructures, improve the living standards of their populations, and accumulate financial wealth. Life expectancy in the GCC countries surpasses the world average; literacy rates exceed 70 percent; school enrollment covers 90 percent of the school-age population; the physician-population ratio is about seven times better than the world average; and infant mortality is less than half the world average. These achievements have been facilitated by abundant financial resources and small populations, but the GCC countries have also managed their oil-based economies relatively successfully compared with other mineral-producing developing countries. Early in their economic development, the GCC countries liberalized their trade and exchange regimes, opened their capital markets, and imported foreign labor, thus avoiding many of the costly distortions experienced by other developing countries. Their pegged exchange rate regimes (mostly to the U.S. dollar) provided a nominal anchor for their economies and helped them maintain low inflation rates. In the same vein, the open-door policy to foreign labor provided the skills needed to help develop nonoil activities at internationally competitive wage rates.
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