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Persian Gulf states need to reengineer taxes, reduce oil dependence: IMF

Head of the International Monetary Fund Christine Lagarde ©AFP

Head of the International Monetary Fund (IMF) has urged oil-exporting Persian Gulf countries to introduce new taxes as low crude prices are likely to be there for an "extended period."

Addressing a forum in Abu Dhabi, the United Arab Emirates, on Monday, Christine Lagarde said Persian Gulf economies "need to strengthen their fiscal frameworks and reengineer their tax systems by reducing their heavy reliance on oil revenues and by boosting non-hydrocarbon sources of revenues," AFP reported.

Lagarde, who started a new five-year term as head of the IMF on Friday, also called on Persian Gulf states to introduce a value-added tax (VAT), "ideally a harmonized regional VAT."

"Even at a low single-digit rate, such a tax could raise up to 2 percent of GDP (gross domestic product)," she added.

Lagarde also called on officials in these countries to put a "greater emphasis" on corporate income taxes in addition to property and excise taxes.

Oil producers losing 20% of GDP to low oil prices

Elsewhere in her remarks, the IMF chief pointed out that oil exporting countries in the Middle East and North Africa lost more than USD 340 billion in oil revenue from their budgets last year, which adds up to 20 percent of their combined GDP.

"Not only have oil prices fallen by around two-thirds from their most recent peak, but supply and demand-side factors suggest that they are likely to stay low for an extended period," she warned.

Global oil prices have dropped from over USD 100 a barrel in July 2014 to around USD 30 at the present time.

Oil price hike unlikely before 2017

Earlier on Monday, the International Energy Agency announced that oil prices are unlikely to rise from current levels before 2017.

"We must say that today's oil market conditions do not suggest that prices can recover sharply in the immediate future - unless, of course, there is a major geopolitical event," the IEA said in its medium-term report, which usually predicts market developments for next five years, AFP reported.

The report added, "Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks."

Persian Gulf countries cut subsidies as oil revenues fall

The drastic cut in oil revenues of Persian Gulf oil producing countries has made some of these countries to take austere measures in order to make up for the deficit.

Saudi newspaper al-Watan reported on Monday that Saudi Arabia has started taxing water for residents amid the soaring cost of debt as the country’s oil revenues continue to fall.

The daily added that the kingdom's unsustainable and extravagant use of water is rapidly depleting the country's reserves.

Saudi Finance Ministry officials announced last December that the kingdom had posted a record high budget deficit of USD 98 billion in 2015 as plummeting oil prices took their toll on kingdom’s revenues.

According to officials, the kingdom’s revenues for the year were estimated at 608 billion riyals (USD 162 billion), which were far below earlier projections and income figure for 2014, while spending figure was announced at 975 billion riyals (USD 260 billion).

Meanwhile, a statement posted on Saudi Finance Ministry’s website last December said the country will be in for a budget deficit of USD 87 billion in 2016, which will be its third annual shortfall in a row.

Budgetary pressure forced Saudi Arabia to review the prices of heavily-subsidized electricity and fuel in the country as Riyadh tried to cope with low oil prices.

Saudi Arabia to blame for oil price fall

Saudi Arabia has been widely blamed for the plummeting oil prices as Riyadh has adamantly refused to cut its crude output in a bid to drive other oil market players, including US shale producers, out of the market.

In addition, Riyadh has been under tremendous financial pressure due to its expensive military intervention in its southern neighbor, Yemen, which started last March in a bid to undermine Yemen’s Ansarullah movement and bring fugitive former Yemeni president, Abd Rabbuh Mansour Hadi, back to power.


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