Ensuring financial stability key to sustaining recovery in GCC: Report
Published: 03:12 PM,Dec 17,2021 | EDITED : 07:12 PM,Dec 17,2021
Financial-Stability-in-Business-Tycoonstory
Economies of the Gulf Cooperation Council (GCC) states, including the Sultanate of Oman, should continue to keep in place macroeconomies policies until a post-pandemic recovery is well and truly entrenched, according to a new report by the International Monetary Fund (IMF)
The report, titled ‘Economic Prospects and Policy Challenges for the GCC Countries – 2021’, has been compiled by the staff of the Washington DC-headquartered global financial institution.
“Macroeconomic policies should remain accommodative until recoveries are firmly established,” the report noted. “Fiscal support has been critical and should be maintained as needed to avoid long-lasting crisis effects and mitigate social impacts, and increasingly targeted to ensure its efficiency and contain fiscal burdens. Where policy space is more limited, targeted support should be maintained, while identifying fiscal savings from cutting or reallocating non-priority spending.”
In this regard, the report urged the GCC states to extend the validity of macro-financial policies if required to ensure liquidity and spur credit growth. In particular, these policies should increasingly targeted at viable firms and complemented by close monitoring of financial stability risks, it said.
Earlier, the report commended the Gulf states for moving quickly to mitigate the health and economic impacts of twin COVID-19 and oil price shocks. According to the report, infection rates have declined across the GCC to well below previous peaks, though countries have experienced successive waves of the virus, and economic recoveries have begun to take hold.
“Nevertheless, GCC policymakers must navigate a challenging and uncertain landscape. The pandemic continues to cloud the global outlook as countries are in different phases of recovery, with varied growth prospects and policy space,” the report warned.
It noted that protecting public health and supporting the most vulnerable remain the top priority for GCC policymakers. To this end, vaccination rollout for all residents should continue, while contingency health plans should be in place to respond to any recurrent virus outbreaks, it said.
But as the COVID-19 crisis abates and economic recoveries are well-established, policies should address medium- and long-term challenges made more pressing by the pandemic, the report stressed.
“Fiscal policy should be geared toward achieving growth friendly consolidation with the aim to ensure long-term fiscal and external sustainability. To this end, priority should be given to strengthening fiscal frameworks, further mobilising non-oil revenues, and increasing spending efficiency. With higher oil prices, procyclical spending should be avoided, and the windfall used to rebuild policy space,” it pointed out.
Additionally, the IMF report called on Gulf states to ensuring financial stability and a dynamic financial sector, stressing their importance to achieving a smooth recovery and sustained strong economic growth.
“Overall, financial sectors appear sound and able to support the recovery and structural transformation, but current stress, legacy risks and emerging vulnerabilities need to be managed, including by strengthening the insolvency and resolution frameworks, reinstating some prudential measures eased during the crisis, and stepping up supervisory efforts,” it said.
The IMF Staff report also underlined the importance of sustained economic growth and diversification. “Economies are vulnerable to risks of scarring from the COVID-19 crisis and over the longer-term declining oil global demand as the world confronts climate change. Ongoing reforms to drive productivity and diversification should be accelerated, including raising female labour force participation, increasing flexibility for expatriate workers, improving education quality, further leveraging technology, enhancing regulatory frameworks, deepening regional integration, and addressing climate change,” it added.
The report, titled ‘Economic Prospects and Policy Challenges for the GCC Countries – 2021’, has been compiled by the staff of the Washington DC-headquartered global financial institution.
“Macroeconomic policies should remain accommodative until recoveries are firmly established,” the report noted. “Fiscal support has been critical and should be maintained as needed to avoid long-lasting crisis effects and mitigate social impacts, and increasingly targeted to ensure its efficiency and contain fiscal burdens. Where policy space is more limited, targeted support should be maintained, while identifying fiscal savings from cutting or reallocating non-priority spending.”
In this regard, the report urged the GCC states to extend the validity of macro-financial policies if required to ensure liquidity and spur credit growth. In particular, these policies should increasingly targeted at viable firms and complemented by close monitoring of financial stability risks, it said.
Earlier, the report commended the Gulf states for moving quickly to mitigate the health and economic impacts of twin COVID-19 and oil price shocks. According to the report, infection rates have declined across the GCC to well below previous peaks, though countries have experienced successive waves of the virus, and economic recoveries have begun to take hold.
“Nevertheless, GCC policymakers must navigate a challenging and uncertain landscape. The pandemic continues to cloud the global outlook as countries are in different phases of recovery, with varied growth prospects and policy space,” the report warned.
It noted that protecting public health and supporting the most vulnerable remain the top priority for GCC policymakers. To this end, vaccination rollout for all residents should continue, while contingency health plans should be in place to respond to any recurrent virus outbreaks, it said.
But as the COVID-19 crisis abates and economic recoveries are well-established, policies should address medium- and long-term challenges made more pressing by the pandemic, the report stressed.
“Fiscal policy should be geared toward achieving growth friendly consolidation with the aim to ensure long-term fiscal and external sustainability. To this end, priority should be given to strengthening fiscal frameworks, further mobilising non-oil revenues, and increasing spending efficiency. With higher oil prices, procyclical spending should be avoided, and the windfall used to rebuild policy space,” it pointed out.
Additionally, the IMF report called on Gulf states to ensuring financial stability and a dynamic financial sector, stressing their importance to achieving a smooth recovery and sustained strong economic growth.
“Overall, financial sectors appear sound and able to support the recovery and structural transformation, but current stress, legacy risks and emerging vulnerabilities need to be managed, including by strengthening the insolvency and resolution frameworks, reinstating some prudential measures eased during the crisis, and stepping up supervisory efforts,” it said.
The IMF Staff report also underlined the importance of sustained economic growth and diversification. “Economies are vulnerable to risks of scarring from the COVID-19 crisis and over the longer-term declining oil global demand as the world confronts climate change. Ongoing reforms to drive productivity and diversification should be accelerated, including raising female labour force participation, increasing flexibility for expatriate workers, improving education quality, further leveraging technology, enhancing regulatory frameworks, deepening regional integration, and addressing climate change,” it added.