Saudi Arabia took its first steps in a program to diversify its economy away from oil, as a new International Monetary Fund report warned Middle Eastern countries they stand to lose half a trillion dollars in the oil markets this year.
Oil exporting countries in the Middle East lost a staggering $390 billion in revenue due to lower oil prices last year, and should brace for even deeper losses of around $500 billion this year, the IMF said.
Meanwhile, Saudi King Salman said the kingdom's Cabinet has approved a plan laying out reform priorities for the next decade and a half.
The monarch announced the approval for the "Vision 2030" plan in a short televised announcement on Monday in which he called on Saudis to work together ensure its success.
The King of Saudi Arabia, Salman bin Abdulaziz al-Saud, attends the US - Gulf Cooperation Council (GCC) summit in Riyadh, Saudi Arabia on April 21, 2016. (Getty Images)
The king's son, Deputy Crown Prince Mohammed bin Salman, spelled out some details of the program in a pre-recorded interview aired shortly after the announcement on Saudi-owned broadcaster Al-Arabiya.
He says a partial initial public offering of the state-owned oil company Saudi Aramco is part of the reform plan to turn the economy around from reliance on oil to being investment-driven.
In a revised economic outlook report released Monday, the IMF said these countries will see revenues from oil exports drop even more in 2016, to between $490 billion to $540 billion compared to 2014, when oil prices were higher. Oil prices plunged to around $30 a barrel in January compared to $115 in mid-2014.
Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz (2-R), Second Deputy Premier and Minister of Defense, meets with French Minister of Foreign Affairs Laurent Fabius (not seen) in Paris, France on June 24, 2015. (Getty Images)
IMF Director for Middle East and Central Asia Masood Ahmed said these losses translate into budget deficits and slower economic growth, particularly for countries like Saudi Arabia that are still heavily dependent on oil to finance their spending. Though the kingdom has been working on plans to overhaul its economy, oil still accounted for 72 per cent of total revenue last year and Saudi Arabia projects a budget deficit of nearly $90 billion this year.
The report said that economic growth in the six Gulf Cooperation Council countries of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates will slow from 3.3 per cent in 2015 to 1.8 per cent this year. Saudi Arabia, the region's biggest economy, will see growth at just above 2 per cent.
The IMF has encouraged reforms that would limit public spending on welfare programs and handouts that citizens in the Gulf have become accustomed to, such as lifting subsidies and tightening public sector wage bills to offset the impact of declining revenues. Already, most GCC countries have raised fuel, water, and electricity prices. Outside the GCC, oil exporter Algeria recently hiked fuel, electricity, and natural gas prices, and Iran increased fuel prices.
"Oil prices are likely to improve from where they are, but they're not going to go back to the figures that we saw in 2013 and 2014 for a long, long time, so this means that many of them have to cut back spending and they also have to try to raise revenue outside the oil sector,'' Ahmed told The Associated Press.
The IMF warns that just among oil exporters in the region, 10 million young people are expected to enter the workforce by 2020, yet 3 million of them will find themselves without jobs at the current pace of development. Young people's frustration at their lack of prospects was a key driver of the Arab Spring uprisings that rocked the Middle East in 2011.
The report said the war in Syria has had a negative spillover effect on the economies of neighbouring Jordan and Lebanon. From October and March alone, more than 600,000 people fled Syria due to the fighting, bringing the total number of refugees to almost 5 million. The size of Syria's economy today, the IMF said, is less than half of what it was before the war erupted in 2011.
In Egypt, political turmoil has held back growth due to concerns over security. However, lower oil prices have reduced energy subsidy bills there.
Though Iran's growth was at zero in 2015, its economy is expected to grow 4 per cent in 2016 and 3.7 per cent in 2017 as it ramps up oil production and looks to increase trade and investment with the easing of international sanctions.
— With multiple reports from The Associated Press