Economies in the six-member GCC are capable of making large fiscal adjustments they need to cope with the period of low oil prices, according to international Monetary Fund (IMF) managing director Christine Lagarde.

Oil exporting nations in the Gulf region will have to cut down on state spending and increase revenues. They have shown the ability to adjust in the past and could do so again, news agency Reuters cited Lagarde as telling a conference of Arab economic officials in Abu Dhabi.

“Oil prices have fallen by two-thirds from their most recent peak but supply and demand-side factors suggest they are likely to stay low for an extended period,” she said.

She estimated that in the Middle East and North Africa (Mena) as a whole, oil exporters lost more than $340bn of revenues last year because of slump in oil prices, equivalent to 20 per cent of their combined gross domestic product.

However, most GCC countries are now in a position where they can pace their adjustment over several years and thus limit the impact on growth, she said.

Lagarde noted that the IMF has helped Kuwait to study the design of broad-based taxes such as VAT and a business profit tax. The Kuwait government has said it is preparing for such reforms but has not made a firm commitment to a specific plan.

By introducing a value-added tax, even at a low single-digit rate, government could raise revenues equivalent to as much as 2 per cent of gross domestic product.

“Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes,” she added.