World Bank slashes growth forecast for the entire GCC region

Oil-producing countries in the Gulf will continue to face pressure from low oil prices, coupled with tightening fiscal and monetary policies this year, the World Bank said.

In the latest update of its Global Economic Prospects report, growth is expected to fall from 2.9% in 2015 to 2% this year in the whole Gulf Cooperation Council (GCC) region. This is the slowest pace since 2009.

The World Bank said the downgrades are partly due to expectations that oil prices will continue to trade lower for the year, at an average of $41 per barrel.

"For GCC countries, continued low oil prices, together with tightening fiscal and (to a lesser extent) monetary policy, will be a drag on activity in 2016," said the World Bank.

Across the Middle East and North Africa, however, growth will edge up slightly to 2.9% mainly due to the strong economic activity in Iran resulting from the lifting of sanctions early this year.

Reforms have recently been introduced in all GCC countries in an attempt to broaden revenues and compensate for significant losses from plunging oil prices.

Only recently, Gulf states agreed to start collecting value-added tax  (VAT) in 2018.

The World Bank expects GCC states to rely on domestic and international debt issuance to finance deficits, and in some cases to continue using public assets.

"The downward pressure on growth from fiscal consolidation will be reinforced in the GCC countries by tightening monetary policy in tandem with any rate increase in the United States," the report stated.

Courtesy: zawya.com