Mubasher: The International Monetary Fund (IMF) became more optimistic about economic growth prospects for Gulf states, but is urging governments to retain social spending as a resurgence in coronavirus cases clouds the region’s outlook, Bloomberg reported on Monday.

Economic output in the six GCC countries is set to shrink by 6% this year, less than the 7.1% contraction forecast in July. The improvement was helped by an upward revision for Saudi Arabia, the region’s largest economy.

Output in the kingdom is seen declining by 5.4% this year, a more moderate contraction than the originally forecast of 6.8%. Its finances were brightened by austerity measures, including tripling the value-added tax (VAT) and higher customs fees.

Still, according to Saudi officials, the kingdom’s budget deficit is predicted to stand at 12% of gross domestic product (GDP) this year.

In the short term, the rise in coronavirus cases regionally poses the main risk for Middle East economies, said the IMF’s director for the Middle East and central Asia, Jihad Azour.

GCC countries to experience deep contraction in 2020

Whilst growth in the Gulf is falling, fiscal and current-account deficits are ballooning. The fiscal deficit is set to widen to more than 9% of GDP this year, the IMF said, predicting a current-account shortfall of about 2% of GDP, versus a 5.8% surplus last year, before a modest recovery in 2021.

The economic fallout of the pandemic is forecast to cause the largest output contraction in the past 20 years for most countries in the region.

The UAE is expected to see its GDP shrink by 6.6% this year before recovering in 2021, while Oman will dive into a 10% contraction.

The global health crisis is also set to raise government debt in the region. In 2020, oil exporters are likely to post the highest rises in government-debt-to-GDP ratios, the IMF said.