GCC Economies Hold Strong in Global Uncertainty as IMF Calls for Wider Reforms

The IMF’s 2025 report portrays a resilient GCC economy that is sustaining strong non-oil growth despite global uncertainty, supported by fiscal discipline, reform momentum, and robust external buffers. Yet it warns that long-term stability depends on deeper diversification, prudent fiscal adjustment, and continued structural reforms to navigate future oil, financial, and geopolitical risks.

The IMF’s 2025 policy paper on the Gulf Cooperation Council, developed with analytical contributions and datasets from the International Monetary Fund, the Mohammed bin Rashid School of Government, McKinsey, the Economist Intelligence Unit, and several academic institutes, portrays a Gulf region standing firm amid global instability. As trade tensions escalate, tariffs rise, and financial markets lose their footing, the GCC has managed to shield its economies through strong domestic demand, disciplined fiscal management, and ambitious reform agendas. The resilience is impressive, but the report makes clear that it remains conditional on continued diversification and prudent policy choices.

Strong Non-Oil Engines Amid Oil-Sector Strains

In 2024, hydrocarbon output sagged under OPEC+ production cuts, but non-oil sectors surged across the region. The UAE led with 4 percent GDP growth, while Kuwait contracted sharply due to deeper output reductions. Tourism proved a standout performer: Qatar’s visitor arrivals during the 2024 Asian Cup exceeded its World Cup peak, and Saudi Arabia and the UAE recorded exceptional hospitality-sector expansion. Consumption strengthened, credit grew steadily, and major projects linked to national visions continued at a pace. Early 2025 brought temporary financial outflows and softer business sentiment as global uncertainty spiked, yet the GCC’s purchasing managers’ indices remained comfortably in expansion territory. Inflation hovered around just 1 percent, owing to currency pegs, regulated prices, and easing global commodity costs.

Disciplined Budgets and Stable Markets

Fiscal positions across the GCC remained broadly stable despite lower oil prices. Kuwait posted large surpluses, Oman, Qatar, and the UAE maintained moderate ones, while Saudi Arabia continued to run controlled deficits linked to massive investment programs. Bahrain remained the fiscal outlier, constrained by high debt and chronic deficits. Governments kept expenditures in check and mobilized more non-oil revenue through broadened tax bases and improved compliance. Monetary policy followed the U.S. Federal Reserve’s easing cycle, though interest rates in the Gulf remain above neutral, keeping conditions relatively tight. Bond spreads stayed below emerging-market averages, stock markets held steady, and Saudi Arabia continued to dominate the region’s IPO landscape. Current account surpluses narrowed as imports surged and oil receipts softened, but external buffers, especially sovereign wealth fund assets, remained exceptionally strong.

A Promising Outlook Shadowed by Risks

The IMF expects GCC growth to strengthen notably in 2025 as oil production cuts are unwound and major natural-gas expansions, particularly Qatar’s North Field, come online. Non-oil activity should remain vibrant, buoyed by mega-projects, private-sector recovery, and global events such as Saudi Arabia’s World Expo 2030. Inflation is projected to stabilize around 2 percent, anchored by exchange-rate pegs. Yet the risks are substantial. A sharp downturn in global oil demand or an oversupplied market could hit revenues hard. In its adverse scenario, the IMF estimates that oil at $40 per barrel would reduce non-oil GDP growth by more than one percentage point and widen fiscal and external deficits by over six percentage points of GDP. Conversely, higher oil prices, stronger reforms, and easier global financial conditions could brighten the region’s outlook.

Reforms to Secure the Future

The IMF underscores that the Gulf’s economic transformation is far from complete. Countries with large intergenerational wealth gaps, such as Bahrain, Kuwait, Oman, and Saudi Arabia, must pursue deeper medium-term fiscal consolidation, prioritizing non-oil revenue, subsidy reform, and more efficient public spending. Public-sector wage bills remain high, and aligning incentives between public and private employment is essential to reduce labor-market segmentation. Meanwhile, the GCC’s rapid uptake of digital technologies and artificial intelligence offers major productivity gains but also demands careful regulation and support for displaced workers. Trade and investment integration must accelerate, particularly for countries with small non-oil export bases. Industrial policies, increasingly common across the GCC, should be tightly targeted, time-bound, and fully embedded within broader diversification strategies.