> **来源：[研报客](https://pc.yanbaoke.cn)** December 2025 # GULF COOPERATION COUNCIL (GCC)—ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The Report prepared by IMF staff and completed on November 20, 2025, has been released. The staff report was issued to the Executive Board for information. The report was prepared by IMF staff. The views expressed in this paper are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. The IMF's transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities' policy intentions in published staff reports and other documents. Electronic copies of IMF Policy Papers are available to the public from http://www.imf.org/external/pp/ppindex.aspx International Monetary Fund Washington, D.C. # Enhancing Resilience to Global Shocks: Economic Prospects and Policy Challenges for the GCC Countries (2025) Prepared by Staff of the International Monetary Fund INTERNATIONAL MONETARY FUND The views expressed herein are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries. # EXECUTIVE SUMMARY Despite the challenging external environment, the GCC economies have been resilient. Non-hydrocarbon activity has remained robust amid strong domestic demand supported by the reform momentum, limited spillovers from regional, as well as the modest direct impact of higher U.S. tariffs given the exemption of energy products and limited trade ties with the U.S. While external balances narrowed amid oil production cuts and robust imports, the external positions remain overall strong. The economic outlook remains favorable but risks are tilted to the downside amidst elevated global uncertainty. Economic activity will be supported by the unwinding of oil production cuts, the expansion of natural gas production, and strong reform and project implementation facilitated by ample policy buffers. External buffers would remain comfortable despite narrower current account balances driven by higher imports. The near-term risks to the outlook are tilted to the downside, as oil prices could decline and financial conditions tighten amid high uncertainty. Over the medium term, ongoing global structural shifts pose two-sided risks for the GCC economies. Amid elevated global uncertainty and commodity price volatility, policies need to focus on building resilience and accelerating economic diversification irrespective of oil prices. Fiscal policy. The challenge for fiscal policy is to balance the objectives of countercyclical stabilization, intergenerational equity, and economic diversification, while managing fiscal risks through contingency planning. - In the near term, the mildly contractionary fiscal stance is broadly appropriate given the need to secure intergenerational equity, and no additional fiscal consolidation is needed in response to lower oil prices given ample policy buffers and the prioritization of public investment. - Over the medium to long term, further fiscal consolidation—of about 6 to 18 percent of non-oil GDP—will be needed in Bahrain, Kuwait, Oman and Saudi Arabia, with its size calibrated to achieve intergenerational equity and its composition focused on mobilizing non-hydrocarbon revenue and phasing out energy subsidies while preserving high priority capital spending needed to support economic diversification. Consolidation efforts should be calibrated to country-specific circumstances and supported by public financial management reforms, including the adoption of credible medium-term fiscal frameworks and appropriate fiscal rules, enhanced risk monitoring, and consolidated sovereign asset-liability management frameworks. Monetary policy. The current monetary policy frameworks—consistent with the currency pegs—have served the GCC well and should be maintained. The policy priority is to strengthen monetary policy transmission, including by enhancing liquidity management frameworks and deepening financial markets. Financial stability. The banking system is on a strong footing. Amid high global uncertainty and commodity price volatility, macroprudential policy should continue to proactively manage systemic risk, while financial regulation and supervision should keep evolving with international standards. Structural policies. Further progress on economic diversification is challenged by elevated global uncertainty that could affect the region through volatile oil prices, lower global growth, tighter global financial conditions, and lower private sector investments (including FDI). Against this backdrop, accelerating and prioritizing reforms irrespective of oil prices will support the transition to a new growth model and enhance resilience in a shock-prone world, with a focus on productivity-enhancing reforms, the deepening of domestic financial markets, and increased trade and financial integration. - Enabling environment. The business climate has improved significantly. Nonetheless, where gaps remain, further progress can be achieved, including through the streamlining and cost reduction of administrative procedures, the enhancement of the rule of law, and an increase in the transparency of public procurements. Similarly, while several policy initiatives have improved labor market outcomes, including female labor force participation (FLFP), further progress is needed to address the wage gap between the public and private sectors, enhance mobility for expatriate workers, increase FLFP, and address the skill mismatch. Given its potential to boost productivity, leveraging digitalization and AI remains a priority, with policies avoiding overregulation to support innovation, enhancing the ability of workers to adapt to new technologies, and strengthening social safety nets to protect displaced workers. - Deepening of domestic financial markets. Deeper financial markets could help mobilize long-term capital for investments, thereby increasing the resilience of diversification strategies in the context of high uncertainty. In the GCC, there is scope to increase the depth of private sector credit (especially for SMEs) and local currency bond markets. Credit markets would benefit from prudent fiscal policies and debt management strategies to increase credit supply to the private sector, higher competition, enhanced quality and coverage of credit information systems, streamlined insolvency procedures, and improved financial literacy. Also, local bond markets could be supported by the elimination of structural impediments (e.g., low private savings, low liquidity) and market infrastructure gaps (e.g., settlement systems), as well as enhanced issuance strategies. - Trade and financial integration. Fostering new and more diverse international economic relationships can help mitigate the impact of trade uncertainty. Against this backdrop, intra- and interregional trade could benefit from streamlining non-tariff barriers and other impediments (e.g., local content requirements), including in the context of trade agreements at country- and GCC-level, as well as reducing tariffs and eliminating other impediments to trade (e.g., infrastructure) in partner countries and regions. In this regard, continued investments by the GCC in partner regions could help enhance trade with them. In addition, financial integration could be supported by an enabling environment, including by further relaxing restrictions on foreign investment. # CONTENTS # EXECUTIVE SUMMARY 2 # RECENT DEVELOPMENTS, OUTLOOK, AND RISKS 6 A. Global Economy in Flux, Prospects Remain Dim 6 B. Recent Developments 8 C.Outlook and Risks 24 # POLICIES FOR DIGITAL, GREEN, AND SUSTAINABLE GROWTH 29 A. Fiscal Policy to Achieve Sustainability while Supporting Growth 29 B. Monetary and Financial Sector Policies to Enhance Monetary Transmission and Maintain Financial Stability 35 C. Structural Policies to Support Diversification and Enhance Resilience Amid High Uncertainty_40 # CONCLUDING REMARKS 49 # BOX 1. Global Trade Policy Changes and the GCC 11 # FIGURES 1. Global Landscape 7 2. Real Sector Developments, 2024 9 3. GCC Economies Amid Heightened Uncertainty, 2025 10 4.Price Developments 13 5. General Government Fiscal Balance 15 6. Non-Hydrocarbon Primary Fiscal Balance and General Government Fiscal Impulse 16 7. General Government Gross Debt and Average Sovereign Credit Ratings 16 8. Policy Interest Rates 17 9. Money and Credit Growth 18 10. Bond Spreads and Stock Indexes 19 11. Gross External Debt Issuance and Initial Public Offerings 19 12. Financial Soundness Indicators for the Banking System 20 13. Current Account Balance 22 14. Capital Flows and External Buffers 23 15. Effective Exchange Rates 24 16. Oil Assumptions and Growth Outlook 26 17. Inflation and External Outlook 27 18. Financial Conditions Index and Non-Hydrocarbon Growth at Risk 28 19. Projected General Government Fiscal Balance 30 # ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES 20. General Government Fiscal Impulse and Fiscal Policy Cyclicality 31 21. Intergenerational Equity Analysis of Fiscal Policy 32 22. Expenditure Policy Indicators 33 23. Tax Policy Indicators 34 24. Partial Public Sector Balance Sheets 35 25. Asset Exposures of the Banking System 37 26. Credit Gap and Countercyclical Capital Buffer 38 27. Economic Diversification, SDGs, and Structural Reforms 41 28. Labor Market Developments 43 29. Digitalization and Artificial Intelligence 44 30. Domestic Financial Markets 46 31. Trade and Financial Integration 47 32. Industrial Policies 48 # TABLES 1. Macroprudential Policy Toolkit 39 2. Selected Economic Data Reporting Metrics by Country/Region 49 3. Annual Indicators: Real Sector 51 4. Annual Indicators: Fiscal and External Sectors 52 5. Quarterly Indicators: Real and External Sectors 53 # ANNEXES I. Global Uncertainty: Implications for the GCC 54 II.Drivers of GCC Sovereign Spreads 59 III. GCC Economic Outlook: Sensitivity to a Decrease in Oil Prices 64 IV. AI: Implications for Growth, Labor Markets, Public Finances, and the Financial Sector 69 V. Deepening Domestic Financial Markets in the GCC 76 VI. Expanding Horizons: Boosting GCC International Trade and FDI Through Regional Corridors 83 VII. Data Quality in the GCC 91 # RECENT DEVELOPMENTS, OUTLOOK, AND RISKS # A. Global Economy in Flux, Prospects Remain Dim Global growth is projected to decelerate in 2025 and 2026 on the back of elevated global uncertainty and tariffs. Although the pause on higher U.S. tariffs announced in May was followed by some stabilization in global financial conditions, persistent uncertainty around global trade continues to weigh on economic activity and expose financial markets to a sudden shift in sentiment. Risks to the global outlook are tilted to the downside. 1. Global growth is set to decelerate amid trade-related uncertainty (Figure 1). While major shifts in global trade policy have been associated with a spike in global uncertainty in early-2025, higher tariff announcements were followed by several trade deals between the U.S. and its trading partners and the world economy was resilient in the first half of 2025 on the back of the frontloading of trade and investment, inventory management strategies, and the rerouting of trade. Nonetheless, uncertainty continues to mount, including related to trade tensions, and effective tariff rates remain high, with a potentially increasing economic impact over time as tariffs are gradually passed on to customers by firms. Against this backdrop, global growth is projected to decelerate slightly from 3.3 percent in 2024 to 3.1 percent in 2026, which also corresponds to a cumulative downgrade of 0.2 percentage points by 2026 relative to the October 2024 WEO. In the Middle East and North Africa, growth is expected to accelerate from 2.6 percent in 2024 to 3.5 percent in 2025 and 3.8 percent in 2026, supported by the unwinding of oil production cuts and the dissipating impact of conflicts in the region. Global inflation is projected to fall to 4.2 percent in 2025 and 3.7 percent in 2026 on the back of declining commodity prices and the global growth slowdown. 2. Risks to the outlook are tilted to the downside. On the downside, growth could be further constrained by a higher-than-expected impact of prolonged policy uncertainty and further protectionism. Geopolitical tensions could be associated with disruptions in global supply chains and an increase in commodity price volatility. Global financial conditions could tighten amid larger fiscal deficits and increased risk (e.g., triggered by disappointing productivity gains related to AI). On the upside, global growth could be supported by the resolution of trade tensions through the establishment of a predictable framework and a decline in tariffs. 3. Global financial conditions are accommodative but remain vulnerable to sudden shifts in market sentiment amid high uncertainty (Figure 1). Following a spike in financial market volatility on the back of elevated economic and trade uncertainty in early-2025, global financial conditions eased, with a rebound in equity markets, a narrowing in spreads, and the weaker U.S. dollar. However, given the slowdown in global growth and continued trade and geopolitical uncertainty, valuations of risk assets appear stretched. An abrupt repricing of risk assets could be amplified by increasing vulnerabilities in the financial system, including related to pressure from wider fiscal deficits, the sovereign-bank nexus, and the interconnectedness between banks and non-bank financial intermediaries. Against this backdrop, global financial stability risks remain elevated. Figure 1. Global Landscape As U.S. effective tariff rates remain well above their 2024-level... U.S. Effective Tariff Rates by Country (Percentage) ...world output growth is set to decelerate... Real GDP Growth (Percentage, y/y) ...and uncertainty remains elevated... Overall, Economic Policy, and Trade Policy Uncertainty (Index) ...while financial market conditions have eased, indicating some decoupling from the uncertain environment. Economic Uncertainty and Financial Volatility (Percentile) Sources: IMF, 2025, World Economic Outlook - Global Economy in Flux, Prospects Remain Dim, October 2025; IMF, 2025, Global Financial Stability Report - Shifting Ground beneath the Calm, October 2025; IMF Staff calculations. ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES # B. Recent Developments # Real Sector Developments While hydrocarbon activity continued to weigh on economic activity amid the OPEC+ voluntary production cuts in 2024, the non-hydrocarbon economy remained robust, supported by domestic demand amid strong project and reform implementation despite the challenging regional context. So far, in 2025, the region continues to demonstrate resilience notwithstanding some temporary deceleration in the context of major global headwinds. Inflation has been broadly contained. 4. In 2024, the hydrocarbon sector continued to be a drag on growth, albeit to a different extent across the GCC (Figure 2). Real GDP growth accelerated from 1.6 percent in 2023 to 1.7 percent in 2024 on average in the GCC, ranging from -2.6 percent in Kuwait to 4 percent in the UAE, with cross-country differences largely due to hydrocarbon sector. Specifically, although the OPEC+ and voluntary production cuts continued to weigh on activity, hydrocarbon growth turned positive in the UAE (1 percent from -3 percent in 2023) and stayed negative, albeit to a significantly lower extent, in Saudi Arabia (-4.4 percent from -9 percent in 2023) due to the 'favorable' base effect. At the same time, the decline in hydrocarbon output accelerated in Bahrain amid the prolonged maintenance of the offshore Abu Sa'fah oilfield, as well as in Oman and Kuwait on the back of additional production cuts. 5. Non-hydrocarbon economic activity was bolstered by strong domestic demand amid diversification efforts (Figure 2). The non-hydrocarbon economy remained the main engine of growth, growing at 3.7 percent in 2024 on average in the GCC, ranging from 1.8 percent in Kuwait to 5 percent in the UAE. Non-hydrocarbon output continued to benefit from strong diversification efforts and project implementation as evidenced by robust domestic demand (+4.6 percent year-on-year on average). Nonetheless, the composition of the latter shifted from investment (4.4 percent year-on-year growth, down from a high base of 13.7 percent in 2023) toward private consumption amid low unemployment and robust credit growth (+5.6 percent, up from 5.1 percent in 2023). Investment continued to be concentrated in the non-hydrocarbon sector. In Saudi Arabia, for example, non-hydrocarbon investments (including government investment) have been in the range of 85-90 percent of total gross capital formation. With limited spillovers from tensions in the Red Sea and conflicts elsewhere in the region, non-hydrocarbon exports also showed robust performance, especially in the tourism sector with double-digit growth in Qatar, Saudi Arabia, and the UAE (Figure 2). In Qatar, for example, tourist arrivals during the 2024 Asian Cup (January-February) exceeded even those during the 2022 World Cup, while in Saudi Arabia, hospitality-related sectors witnessed the fastest sectoral growth. This momentum in tourism and private consumption was also reflected in the strong performance of services, particularly wholesale and retail trade, hotels, and restaurants. In 2024, production cuts continued to weigh on growth, while non-hydrocarbon growth remained robust... # GCC: Real GDP Growth (Percentage, YoY, unweighted average) Figure 2. Real Sector Developments, 2024 Domestic demand remained robust contributing to the strong performance of service sectors... # Real GDP: Composition of Growth (Percentage and percentage point, YoY) ...continuing to be the main engine of growth, albeit to a different extent across the GCC. # Real Hydrocarbon and Non-Hydrocarbon GDP (Percentage and percentage point, YoY) ...in the context of strong private consumption, while investment growth decelerated in most GCC countries. # Domestic Demand: Composition of Growth (Percentage and percentage point, YoY) Note: Following the revision of the historical GDP data in the UAE, the breakdown of GDP by expenditure was not available as of the cut-off date for the preparation of the note. Sources: IMF WEO, IMF staff. # 6. So far in 2025, the GCC economies have continued to demonstrate resilience in a challenging environment (Figure 3 and Annex I). The escalating trade tensions had a modest direct impact on the GCC, given the exemption of energy products from U.S. tariffs and limited trade ties with the U.S. in most GCC countries (Box 1). Nonetheless, the GCC economies were indirectly affected by elevated global and regional uncertainty, as indicated by some temporary capital outflow pressures amid trade tensions in January and April and a short-lived decline in the non-oil private sector PMI (albeit remaining in expansion territory and exceeding AEs and EMs). Despite the complicated regional context, tourist arrivals remained strong in the GCC, albeit to a different extent across countries, with Saudi Arabia and the UAE driving the sector's strong performance. Finally, although export volumes have been relatively low compared with recent years, reflecting oil production cuts, the unwinding of the latter started in April at an accelerated rate.[2] Figure 3. Economies Amid Heightened Uncertainty, 2025 As uncertainty increased in late-2024 and early-2025... World Uncertainty Index ...and the non-oil private sector outlook recorded a short-lived weakening but remained positive. Purchasing Manager Index 1/ Exports from major GCC ports have been relatively modest, reflecting oil production cuts.... Export Volumes from Major GCC Ports ...the GCC faced some temporary capital outflow pressures followed by a quick rebound... (8-week rolling sum in percentage of AUM) Net Portfolio Inflows in the GCC and EMs International flight arrivals remained strong at the GCC level, albeit to a different extent across countries. (cumulative change since 2019, percentage) International Flight Arrivals ...which started being unwound in April, while oil prices declined in Q2-2025. Oil Production and Prices 1/ The GCC figures indicate the average for Kuwait, Qatar, Saudi Arabia, and the UAE. Sources: Ahir, Bloom, and Furceri (2022); EPFR; PortWatch; Haver; FlightRadar; JODI (Haver); World Bank "Pink Sheet" Data; IMF staff. # Box 1. Global Trade Policy Changes and the GCC Tariff announcements by the U.S. affected the GCC countries to a modest extent. While direct impacts on trade with the U.S. are relatively higher in Bahrain, Oman, and the UAE given the higher shares of aluminum in their total exports to the U.S., the overall economic impact is contained by the moderate trade ties with the U.S. across the GCC. 1/ Tariff announcements affected trade between the U.S. and the GCC to a different extent across goods. Specifically, all exemptions to the 25 percent tariff on U.S. steel imports were removed and the tariff rate on aluminum was raised from 10 to 25 percent in mid-March, and rates were further increased to 50 percent in early-June. In addition, the introduction of the US Fair and Reciprocal Plan on April 2 implied a 10 percent tariff rate on imports from the GCC countries, with exemptions applied to 'critical' goods, including energy and certain minerals. # Box 1. Figure 1. Exports of Goods to the U.S. The composition of exports to the U.S. differs across GCC countries... Exports to the U.S., 2023 (Share in total exports to the U.S., percentage) ...resulting in different effective tariff rates. Trade-Weighted U.S. Tariffs on Imports from the GCC, 2025 (Percentage) Source: UN Comtrade, WTO-IMF Tariff Tracker, Staff calculations. Effective U.S. tariff rates have been affected by the composition of exports, leading to large differences across GCC countries (Box Figure 1). In Kuwait and Saudi Arabia, the relatively high importance of goods that are exempt from tariffs (e.g., energy and certain minerals in the chemical industry) resulted in a modest effective tariff rate. At the same time, the non-negligible shares of aluminum in exports resulted in spikes in the effective rates in Bahrain, Oman, and the UAE following the tariff hikes in March and June, with rates reaching around 30 percent in Bahrain. Finally, in Qatar, the effective tariff rate increased gradually as the impact of the high tariff on aluminum exports was partially offset by exempted energy exports. Against this backdrop, the direct impact on trade with the U.S. is relatively low in most GCC countries (Box Figure 2 left panel). Reflecting the strength of their trade ties, the estimated potential change in bilateral trade with the U.S. varies across the GCC: bilateral goods exports to the U.S. could decrease at double-digit rates in Bahrain, Oman, and the UAE (10-15 percent in the near term and 20-30 percent in the long term), while the estimated declines are modest in Kuwait, Qatar, and Saudi Arabia (0-6 percent in the near-and long term) (Box Figure 2. left panel). # Box 1. Global Trade Policy Changes and the GCC (concluded) Moreover, the direct impact on the GCC economies of higher tariffs is further moderated by the relatively modest trade relations with the United States (Box Figure 2 right panel). Specifically, the share of exports to the U.S. in total exports of goods amounted to 0-2 percent in Kuwait, Oman, Qatar, and the UAE, close to 5 percent in Saudi Arabia, and around 8 percent in Bahrain in 2023. Also, goods exports to the U.S. amounted to only 1.4 percent of GDP on average in the GCC, ranging from close to zero in Kuwait to 2.6 percent of GDP in the UAE. # Box 1. Figure 2. Economic Impact of Tariff Increases The change in exports to the U.S. varies across the GCC reflecting their trade ties... Estimated Impact of Higher Tariffs on Goods Exports to the U.S. (Percentage) ...while the overall impact on GDP is contained by the relatively modest trade ties with the U.S.. Exports of Goods to the U.S., 2023 (Percentage) Note: The bars on the left chart represent the direct (partial equilibrium) impact of the announced U.S. tariffs. Changes in bilateral trade flows are based on short- and long-run elasticities from Boehm, Levchenko and Pandalai-Nayar (2023). Given that the model does not differentiate between steel and aluminum and the literature suggests a lower price elasticity of demand in the case of the latter, the estimates on the chart can be considered an upper bound of the potential impact on exports. Sources: UN Comtrade, Staff calculations. 7. Inflation has been contained, supported by the exchange rate peg, the broadly neutral output gap, and regulated prices (Figure 4). On average, headline inflation decelerated to 1.5 percent in 2024 and has remained contained at around 1 percent on average in the first seven months of 2025. Tradable inflation has been hovering around 1 percent as subsidies and caps on prices were maintained in most countries, commodity prices have moderated, and the exchange rate pegs helped contain imported inflation. Non Tradable inflation fell to less than 1 percent in 2025, supported by the broadly neutral output gap amid appropriately tight monetary policy. Nonetheless, there was some variation across countries, with non Tradable inflation having started to moderate in Saudi Arabia (mostly driven by rental prices), and Tradable prices (food, beverages, clothing, and household goods) increasing at a relatively high rate in Kuwait. Figure 4. Price Developments Headline inflation has stabilized at close to or below 2 percent across the GCC... Headline Inflation ...and non-tradable inflation also stabilized at a low level in most countries... Non-Tradable Inflation Sources: IMF WEO, IMF staff. ...as tradable inflation has been muted over the past two years... Tradable Inflation ...against the backdrop of the broadly neutral output gap. GCC: Non-Hydrocarbon Economic Cycle # ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES # Fiscal Developments Fiscal discipline has been maintained in the GCC, and the stance of fiscal policy has become contractionary. Fiscal balances have been stable despite declining oil prices, supported by continued efforts to contain government expenditures and mobilize non-hydrocarbon revenues. 8. Fiscal balances have been broadly stable across the GCC recently, but vary widely in their level and composition (Figure 5). Since 2023, general government fiscal balances as shares of GDP have exhibited subdued volatility at the annual frequency, in parallel with macroeconomic fundamentals. This period of relative stability follows the surges in fiscal balances across the GCC in 2022, driven by the oil price spike associated with the resolution of the pandemic and outbreak of the war in Ukraine. Since 2023, Oman, Qatar and the UAE have been running moderate fiscal surpluses despite declining oil prices, while Saudi Arabia has been running moderate fiscal deficits amid continued strong project implementation. In contrast, Kuwait has been running substantial fiscal surpluses, while Bahrain has been running substantial fiscal deficits. This wide variation in fiscal performance is largely explained by differences in hydrocarbon revenues, which have been highest in Kuwait and lowest in Bahrain. Abstracting from this volatile revenue source, non-hydrocarbon fiscal balances have been broadly stable or gradually improving across the GCC recently, reflecting fiscal consolidation efforts. 9. Government expenditures have been contained recently, while non-hydrocarbon revenues have been mobilized (Figure 5). Current expenditures of the general government have remained roughly constant or increased moderately as shares of GDP in the GCC since 2023. The exception is the UAE, where current expenditures fell moderately as a share of GDP. Capital expenditures of the general government have remained roughly constant as shares of GDP over this period, except in Kuwait where they increased significantly, and in Qatar where they moderated. Meanwhile, significant non-hydrocarbon revenue mobilization has been achieved by Kuwait and Saudi Arabia, primarily reflecting non-hydrocarbon tax base expansions and revenue collection efficiency improvements, including through digitalization. Figure 5. General Government Fiscal Balance 1/ Fiscal balances have been broadly stable, with expenditures contained and non-hydrocarbon revenues mobilized. Bahrain (Percent of GDP) Sources: IMF October 2025 WEO. Kuwait (Percent of GDP) Sources: IMF October 2025 WEO. Oman (Percent of GDP) Sources: IMF October 2025 WEO. Qatar (Percent of GDP) Sources: IMF October 2025 WEO. Saudi Arabia (Percent of GDP) Sources: IMF October 2025 WEO. United Arab Emirates (Percent of GDP) Sources: IMF October 2025 WEO. 1/ Fiscal balance in WEO: i) covers general government for Kuwait and UAE, versus central government for Bahrain, Oman, Qatar and Saudi Arabia; ii) is defined differently from that in Budget for Bahrain and Kuwait; and iii) includes SWF investment income for Kuwait and Oman only. 10. The stance of fiscal policy has become contractionary in the GCC (Figure 6). The fiscal impulse—as measured by the change in the non-hydrocarbon primary fiscal deficit of the general government in percent of non-hydrocarbon GDP—is estimated to be negative across the GCC in # ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES 2025, with fiscal consolidation constraining robust non-hydrocarbon growth to varying degrees. The exception is the UAE where the fiscal impulse is estimated to be approximately zero, while the caveat is that rising domestic investment by SWFs and GREs more broadly continue to support non-hydrocarbon growth in the region. # Figure 6. Non-Hydrocarbon Primary Fiscal Balance and General Government Fiscal Impulse The stance of fiscal policy has generally become contractionary. Non-Hydrocarbon Primary Fiscal Balance General Government Fiscal Impulse /1 1/ Change in general government non-hydrocarbon primary fiscal deficit in percent of non-hydrocarbon GDP. Presents IMF staff projections for 2025. 11. Government debt generally remains low in the GCC, supporting investment grade sovereign credit ratings (Figure 7). General government gross debt remains contained at or below a low level in the GCC countries, except in Bahrain where it has steadily risen to an elevated level. On average across the major credit rating agencies, sovereign credit ratings have improved since the pandemic in Oman, Qatar and Saudi Arabia. They are now well above the investment grade threshold in Kuwait, Qatar, Saudi Arabia and the UAE, and have reached this threshold in Oman with two of the three major agencies. Figure 7. General Government Gross Debt and Average Sovereign Credit Ratings Government debt generally remains low, supporting investment grade sovereign credit ratings. General Government Gross Debt Average Sovereign Credit Ratings 1/ 1/ Average of sovereign credit ratings from Fitch, Moody's and Standard & Poor's, each converted into a comparable index where 100 = best and 0 = worst. # Monetary and Financial Sector Developments Monetary policy has supported exchange rate pegs in the GCC, and its stance remains restrictive. Financial stability has been maintained, underpinned by prudent financial regulation and supervision. Looser financial conditions are stimulating bank and capital market based financial intermediation. 12. Monetary policy in the GCC has continued to track the US Federal Reserve (Fed), consistent with maintaining exchange rate pegs (Figure 8). Mirroring the cumulative 125 basis points of policy interest rate cuts by the Fed since its monetary easing cycle began in September 2024, 125 basis points of rate cuts were also implemented in Bahrain, Oman, Saudi Arabia and the UAE, while 140 basis points of rate cuts occurred in Qatar. The exception is Kuwait, where only 50 basis points of policy interest rate cuts have been implemented since September 2024, reflecting its exchange rate peg to an undisclosed basket of currencies, unlike the other GCC countries which peg to the US dollar. Figure 8. Policy Interest Rates Monetary policy has continued to track the Fed, and its stance remains restrictive. Policy Interest Rates versus Effective Fed Funds Rate 1/ 1/ End-of-period central bank policy interest rates. Policy Interest Rates versus Neutral Rates 2/ 2/ Estimated neutral policy interest rates. 13. The stance of monetary policy remains restrictive across the GCC (Figure 8). Despite monetary easing since September 2024, policy interest rates remain above their estimated neutral levels, imparting disinflationary impetus to the economy. The variation in estimated neutral rates across the GCC countries primarily reflects differences in their estimated potential non-hydrocarbon growth rates.<sup>3</sup> These estimates are subject to considerable uncertainty. 14. Money and credit growth have generally been picking up in the GCC (Figure 9). Growth in broad money, and in bank credit to the nonfinancial private sector, generally increased across the GCC in 2024, with this upwards momentum carried into 2025. These broad-based money and credit expansions reflect robust non-hydrocarbon growth, as well as looser financial conditions given monetary policy easing. Bank credit growth is strong in Saudi Arabia, where growth in personal and corporate loans has outpaced growth in deposits, raising the reliance of the banking system on other funding sources, including short-term foreign currency wholesale funding. Figure 9. Money and Credit Growth Money and credit growth have generally been picking up. Money Growth 1/ (Annual Percentage Rate) 1/ M2 broad monetary aggregate. Credit Growth 2/ (Annual Percentage Rate) 2/ Domestic bank credit to domestic nonfinancial private sector. 15. Bond spreads across the GCC have remained below the EM benchmark recently, while stock indices have roughly matched the EM benchmark (Figure 10). Bond and equity markets in the GCC have been resilient to the multiple episodes of heightened global economic uncertainty that have occurred this year (Annex I). The spreads between the yields on GCC bonds and US Treasuries have steadily narrowed since the pandemic, and have all remained below the EM benchmark since March 2022 (Annex II). This reflects the relatively low credit risk of GCC sovereign, quasi-sovereign and corporate debt issuers. Following a period of stock market overperformance associated with the oil price spike in 2022, stock indices have roughly tracked the EM benchmark, which has delivered strong returns. This performance has been achieved despite declining oil prices and the heavy weighting of oil companies in some GCC stock indices. In 2025, initial public offerings remain concentrated in Saudi Arabia (22 transactions of US$152 million average size) and the UAE (5 transactions of US$343 million average size). Figure 10. Bond Spreads and Stock Indexes Bond spreads have remained below the EM benchmark, while stock indices have roughly matched it. Bond Spreads versus EM Benchmark 1/ (Percentage Points) 1/ End-of-period JP Morgan MECI or EMBIG bond spreads. Stock Indices versus EM Benchmark 2/ January $2023 = 100$ 2/ End-of-period MSCI stock indices with net dividends in US dollars. 16. External debt issuance picked up in the GCC (Figure 11). In 2024, all GCC countries raised their gross external debt issuance as a share of GDP, except for Qatar. Financial corporations generally accounted for the largest share of this gross external debt issuance, followed by nonfinancial corporations and the general government. External sovereign debt was issued by Bahrain, Qatar, Saudi Arabia and the UAE, in part reflecting their strategies to finance infrastructure development projects associated with their structural reform programs, while diversifying their funding sources or developing their yield curves. In 2024, Saudi Arabia was the largest emerging market dollar debt issuer in the world. Figure 11. Gross External Debt Issuance and Initial Public Offerings External debt issuance picked up, while initial public offerings remain concentrated. Gross External Debt Issuance /1 (Percent of GDP) Sources: BIS; IMF October 2025 WEO; IMF staff calculations. Initial Public Offerings /2 (Percent of GDP) Sources: Statista; IMF October 2025 WEO; IMF staff calculations. 1/ All issuers in all currencies by nationality. 2/ Transaction value. Figure 12. Financial Soundness Indicators for the Banking System Banking systems generally remain well-capitalized, liquid and profitable, with nonperforming loans contained. Regulatory Capital to Risk-Weighted Assets Sources: Haver Analytics. Loans to Deposits 1/ Sources: Haver Analytics; GCC authorities; IMF staff calculations. Return on Assets Sources: Haver Analytics; GCC authorities. Return on Equity Sources: Haver Analytics; GCC authorities. Nonperforming Loans to Total Gross Loans Sources: Haver Analytics. Provisions to Nonperforming Loans Sources: Haver Analytics; IMF staff calculations. 1/ Coverage varies across GCC countries: retail loans to deposits for Bahrain; commercial bank loans to deposits for Qatar and Saudi Arabia; and credit to deposits for Kuwait, Oman and the UAE. 17. Banking systems across the GCC generally remain well-capitalized, liquid and profitable, while nonperforming loans mostly remain low and well-provisioned for (Figure 12). In recent years, capital adequacy ratios have remained strong and stable across GCC banking systems, well above prudent regulatory requirements. Bank loans have been covered by deposit funding in most GCC countries, with Saudi Arabia becoming more reliant on other sources of funding. Bank profitability has rebounded from its pandemic lows across the GCC. Nonperforming loans are generally low and well-provisioned for in the GCC countries, with loan impairments in the UAE having moderated, and loan provisions in Kuwait remaining very strong. # External Sector Developments Current account balances narrowed amid oil production cuts and robust imports on the back of strong domestic demand in 2024. FDI inflows accelerated in some countries and portfolio flows were boosted by large bond issuances. At the same time, the GCC continued to make large investments abroad, albeit to a different extent across countries. 18. Current account balances narrowed further in 2024 amid the less supportive hydrocarbon environment and robust investment-driven imports, notwithstanding some differences across countries (Figure 13). On average, the GCC current account surplus declined to 11.4 percent of GDP in 2024 from 12.1 percent of GDP in 2023, with the current account surplus switching to a deficit of 0.5 percent of GDP in Saudi Arabia. This was largely driven by the worsening hydrocarbon trade balance amid production cuts. In addition, the non-hydrocarbon trade deficit remained elevated on the back of strong consumption- and investment-related imports. Specifically, imports of goods and services amounted to 56.3 percent of GDP in the GCC in 2024, up from an average of 49.7 percent of GDP over the previous 10 years. In Saudi Arabia, the external balance was also affected by the double-digit growth in remittance outflows supported by an increase in expatriate labor amid strong economic activity and the digitalization of transfer platforms, while in Bahrain rising interest payments on public debt led to a deterioration in the balance on income. At the same time, the strong performance of the tourism sector continued to support the current account balance in Qatar, Saudi Arabia, and the UAE. Figure 13. Current Account Balance Current account balances narrowed further in most GCC countries in 2024... Current Account Balance (Percentage of GDP) ...against the backdrop of oil production cuts and deteriorating terms of trade amid falling oil prices... Oil Production and Terms of Trade ...driven by worsening hydro- and non-hydrocarbon balances... Current Account Balance (Percentage of GDP) ...as well as strong investment-related imports. Imports of Goods and Services (Percentage of GDP) Sources: IMF WEO, JODI (Haver), World Bank "Pink Sheet" Data, IMF staff. 19. The GCC continued to accumulate sizeable external assets against the backdrop of current account surpluses and capital inflows (Figure 14). Inward capital flows reached close to 7 percent of GDP in 2024. Amid the favorable business environment and diversification efforts, inward foreign direct investment (FDI) remained high and/or accelerated in some countries (most notably Oman and the UAE). In addition, portfolio inflows were supported by bond issuances by sovereigns, energy companies, sovereign wealth funds (SWFs), and banks (e.g., Saudi Arabia became the $8^{\text{th}}$ largest source of Additional Tier 1 bond supply globally in 2024 and the $2^{\text{nd}}$ in 2025, and the largest dollar-denominated Sukuk issuer globally in 2024), as well as the large number of initial public offerings. Against the backdrop of current account surpluses and capital inflows, the GCC countries continued to acquire foreign assets, including in the form of (i) foreign investments by SWFs and others; (ii) financial support to sovereigns, including the announced investments of US$35 billion by the UAE in Egypt, and the extension of deposits of US$3 billion by Saudi Arabia in Pakistan; and (iii) reserve accumulation, especially in the UAE. In Saudi Arabia, the emergence of current account deficits was accompanied by a moderation in the acquisition of foreign assets and drawdown on some currency deposits held abroad. Figure 14. Capital Flows and External Buffers Most GCC countries continued to witness large capital inflows... Inward Capital Flows (Percentage of GDP) ...that - combined with current account surpluses - financed large foreign investments and reserve accumulation. Balance of Payments (Percentage of GDP) Notwithstanding differences across the GCC, gross international reserves remain ample... Gross International Reserves, 2024 (Months of imports of goods and services) ...and external buffers are also boosted by other foreign assets. Net International Investment Position, 2023 (Percentage of GDP) Note: Given the relatively high share of re-exports in total imports, the reserve coverage ratio calculated on the basis of total imports could understate external buffers in some countries. Sources: IMF WEO, Milesi-Ferretti, Gian Maria, 2024, "The External Wealth of Nations Database," The Brookings Institution (based on Lane, Philip R. and Gian Maria Milesi-Ferretti, 2018, "The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Economic Review 66, 189-222.), IMF staff. 20. The assessment of the external position varies across the GCC, while external balance sheets remain strong in general (Figure 14). Compared with the level implied by medium-term fundamentals and desirable policies, the external position is assessed to be stronger in Qatar, broadly in line in Saudi Arabia, Oman, and the UAE, and weaker in Bahrain and Kuwait. In the latter countries, the saving-investment balance converges towards the level implied by medium-term # ENHANCING RESILIENCE TO GLOBAL SHOCKS: ECONOMIC PROSPECTS AND POLICY CHALLENGES FOR THE GCC COUNTRIES fundamentals and policies on the back of the implementation of medium-term fiscal consolidation and economic diversification plans. External buffers are ample across the GCC. Gross international investment assets range from about 90 percent of GDP in Bahrain to around 760 percent of GDP in Kuwait as of 2023. Also, official reserves remain generally adequate according to standard IMF metrics. In Bahrain, reserves remained below the typical norm of 3 months of imports at the end of 2024. Moreover, external buffers are even higher across the GCC considering other external assets, including those held by SWFs. # 21. Real effective exchange rates appreciated modestly in most GCC countries in 2024 (Figure 15). The nominal effective exchange rate (NEER) continued to appreciate across the GCC (by 2.1 percent on average) in 2024, reflecting the strength of the dollar. Given the negative inflation differential, however, this translated into either modest appreciation (Saudi Arabia) or depreciation (Bahrain) of the real effective exchange rate (REER). In early-2025, the REER depreciation was driven by the combination of the continued negative inflation differential and the depreciation of the NEER resulting from a weaker U.S. dollar. Figure 15. Effective Exchange Rates In 2024, the REER recorded either modest appreciation or depreciation despite the strengthening of the NEER... (Percentage, Change Relative to Jan 2023) Nominal and Real Effective Exchange Rates ...as the inflation differential continued to be negative. (Percentage, YoY) Composition of Real Effective Exchange Rate Note: The REER data and their decomposition span until April 2025 for Oman, Qatar, and the UAE, and July 2025 for Bahrain, Kuwait, and Saudi Arabia. Sources: IMF WEO, IMF staff. # C. Outlook and Risks In the near term, the external environment has become more challenging in the context of elevated global uncertainty and lower oil prices. Nonetheless, the economic outlook in the GCC remains favorable, as (i) trade-related uncertainty has a modest direct impact on the region; (ii) policy buffers help maintain strong project implementation; and (iii) oil production cuts are unwound. Over the medium term, growth will be supported by the robust performance of the non-hydrocarbon economy amid diversification efforts and the expansion of oil and natural gas production and export capacities. Although external balances will decline on the back of strong investment-driven imports and lower oil prices, buffers remain ample in most countries. The risks to the near-term GCC economic outlook are tilted to the downside, while ongoing global structural shifts pose two-sided risks over the medium term. 22. Overall activity will be supported by the unwinding of oil production cuts and the expansion of natural gas production (Figure 16). GCC output growth is projected to accelerate from 1.7 percent in 2024 to 3.3 percent on average in 2025 as hydrocarbon growth becomes positive owing to the unwinding of production cuts. Specifically, the third tranche of the additional voluntary production cuts of around 1.3 million barrels a day by Kuwait, Oman, Saudi Arabia, and the UAE (out of total cuts of 2.2 million announced in November 2023) has been fully reversed by September, and the unwinding of the second tranche of cuts of around 0.8 million barrels by the GCC countries (out of total cuts of about 1.7 million barrels announced in April 2023) started in October, resulting in hydrocarbon growth of 2.4 percent on average in the GCC.<sup>4</sup> In 2026, hydrocarbon growth will accelerate further to 5.9 percent on average, ranging from 1.8 percent in Bahrain to 12.1 percent in Qatar, on the back of the continued phase-out of production cuts and the expansion of oil and natural gas production capacities (e.g., the North Field LNG production expansion in Qatar; increased oil production and refinery capacities and the completion of the Ruwais LNG plant in the UAE). Over the medium term, hydrocarbon growth is expected to be around 2 percent on average, including supported by ongoing exploration and development activities (e.g., Al-Nokhatha and Al-Jlaiaa fields in Kuwait). 23. Notwithstanding high global uncertainty and less supportive oil prices, the non-hydrocarbon economy will remain strong (Figure 16). Compared to last October WEO projections, the near-term outlook is characterized by a more challenging external environment in the context of elevated global uncertainty, including related to commodity prices. In 2025 and 2026, for example, oil price assumptions have been lowered by 5.4 and 6.3 percent, respectively relative to the October 2024 WEO. Nonetheless, non-hydrocarbon activity will remain robust as (i) the direct impact of changes in global trade policies is limited (Box 1); and (ii) domestic demand will be supported by continued strong project implementation, including by the central government and sovereign wealth funds, with policy buffers and borrowing offsetting the impact of lower oil prices as needed. In addition, activity will be supported by idiosyncratic factors (e.g., the hosting of large-scale international events such the AFC Asian Cup in 2027, the Asian Winter Games in 2029, the World Expo in 2030, and the World Cup in 2034 in Sau