Gulf oil exporters must reduce spending, including subsidies and diversify their economies to cope with lower revenues caused by the sharp drop in crude prices, the International Monetary Fund (IMF) said. The wealthy monarchies, however, should "not react in a knee-jerk way to lower oil prices," IMF Middle East and Central Asia Director Masood Ahmed told AFP in an interview Monday. They would be better off to "adjust gradually" using the large financial reserves they have accumulated during several years of bumper oil receipts, he said in Dubai. But as oil prices have dropped lower than budgeted break-even levels, "it is important that they gradually, but in a determined way, progressively reduce their spending [and] consolidate their fiscal position," Ahmed said. Oil prices have shed half of their value since June 2014, and are expected to be lower than the break-even point for Gulf countries in the next three to four years. The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - economies all heavily dependent on energy revenues. A combined budget surplus for 2014 of $76 billion is expected to turn into a deficit of $113 billion this year, the IMF said in its latest regional report. The forecast did not account for fallout from the conflict in Yemen, where a Saudi-led coalition launched an air campaign in March against Iran-backed Shiite rebels in support of exiled President Abed Rabbo Mansour Hadi.
"They need to act to reinforce their efforts to diversify their economies to become less dependent on oil," said Ahmed, stressing that many have already taken such measures. "The UAE is more advanced in terms of diversification. The others also are in varying degrees trying to encourage private sector activity outside the oil area." The IMF has forecast GCC countries to grow as a group at 3.4 percent in 2015, 1 percent down from earlier predictions, mainly because of a slowdown in non-oil growth in response to lower oil prices.
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