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International Monetary Fund
growth in expenditure, GCC governments have started to implement significant fiscal consolidation measures, but more needs to be done. Rapid population growth and booming oil revenues led to large increases in government spending in the GCC in the decade to 2014, which now stands high by international standards. This expenditure is dominated by compensation of employees and other current spending which are large in percent of GDP compared to Emerging Market (EM) countries and other oil exporters. This keeps overall spending above levels consistent with long-term fiscal sustainability and intergenerational equity. The international experience with large fiscal adjustments provides some key lessons for GCC countries. This experience suggests that growth outcomes improve when fiscal adjustments are sustained as part of credible multi-year fiscal plans, rely on expenditure more than revenue adjustment, and lead to improvements in expenditure composition (away from current outlays to more productive spending) and the structure of revenue (away from direct to indirect taxation). Successful fiscal adjustments also tend to be part of wider structural reforms that support growth.
International Monetary Fund

Executive Summary 1 After years of rapid growth in expenditure, GCC governments have started to implement significant fiscal consolidation measures, but more needs to be done . Rapid population growth and booming oil revenues led to large increases in government spending in the GCC in the decade to 2014, which now stands high by international standards. This expenditure is dominated by compensation of employees and other current spending which are large in percent of GDP compared to Emerging Market (EM) countries and other oil exporters. This keeps overall

International Monetary Fund

achieve medium-term objectives. Further building macro-fiscal capacity in ministries of finance would help successfully implement multi-year budget frameworks, while aligning sovereign wealth funds to the fiscal frameworks through inflow and outflow rules that would ensure a consistent fiscal anchor. Strengthening contingency plans through a fiscal risk analysis framework would enable GCC governments to respond to future adverse shocks and maintain credibility of their MTFFs. Progress on such frameworks (e.g., Oman, Saudi Arabia) is welcome and should continue. Clearly

International Monetary Fund. External Relations Dept.

such as oil revenue stabilization funds could be used. Medium-term reform strategy The GCC governments know they face long-term challenges that will require removing impediments to investment. Reforms will need to address restrictions on foreign ownership of companies, disengaging government from commercial activities, and giving the private sector a leading role in the economy. Most GCC countries have embarked on medium-term plans to privatize state-owned enterprises (including in telecommunications, transportation, electricity, infrastructure, and

Mr. Armand P Fouejieu, Mr. Sergio L. Rodriguez, and Mr. Sohaib Shahid