Dr. Nasser Saidi, the former Chief Economist for Dubai International Financial Centre (2006-12), has argued that “the drop in oil price provides the ‘Perfect Storm’ opportunity for policy reforms.”
With the Gulf Cooperation Council (GCC) facing both the pressure of lower oil and export revenues as well as a loss of competitiveness due to the appreciating US dollar, Nasser outlines how they should adjust to the new paradigm of low oil prices:
- Avoid pro-cyclical fiscal policies.
- Remove fuel subsidies and shift spending to productive investments.
- Diversify the sources of government revenue.
- Run budget deficits.
Noting the current situation as an historic opportunity, Nasser concludes by saying that “the collapse of oil prices should be used by GCC countries to undertake economic and fiscal reforms that could simultaneously lead to diversification of government revenue, reduce dependence on oil revenue, help develop local financial markets and remove distortions to production and consumption resulting from oil subsidies. The starting point should be to abolish oil and gas subsidies.”
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