Magazine article The Middle East

IMF's Lagarde Advises Gulf States to Cut Spending and Impose Taxes

Magazine article The Middle East

IMF's Lagarde Advises Gulf States to Cut Spending and Impose Taxes

Article excerpt

Arabian Gulf states must raise taxes, cut spending and increase gender equality to prevail through an era of low oil prices, according to the IMF managing director Christine Lagarde (above), who is making her first visit to the country as head of the fund this week.

"My message to the UAE is to continue consolidating its finances at a pace that minimises the impact on growth," she told the UAE's The National newspaper. As for Saudi Arabia, "more will need to be done to curb spending and raise revenue to reduce the fiscal deficit". That includes "further gradual increases in energy and water prices, accompanied by compensation to protect the most vulnerable".

New taxes will be needed across the Gulf if nation states are to survive the era of low oil prices, Lagarde warned. "The authorities need to raise non-oil revenues ... through the introduction of a Value Added Tax and excise taxes," said the IMF chief.

The collapse in oil prices has had a massive effect on budgets throughout the region. The IMF estimates that Gulf states lost about $285 billion in revenues from oil exports last year, equivalent to a fifth of the region's GDP. Moody's expects that the UAE will run a budget deficit of 14 per cent of GDP this year. Saudi Arabia plans to run a deficit of $87bn in 2016--equivalent to about 11 per cent of GDP--but the kingdom has regularly overshot its spending targets in recent years.

Ms Lagarde also called on the UAE to introduce a raft of liberalising measures "to accelerate diversified growth led by the private sector". She noted: "These reforms include opening up for foreign dir-ect investment, and improv-ing specific areas of the business environment--easing SMEs' and start-ups' access to finance, and enhancing incentives to [work in the] private sector-- while continuing to improve the overall quality and relevance of education and training. …

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