Saudi Arabia and Kuwait are the Gulf countries which are most dependent on oil revenues despite moves to diversify economies in the region, according to a new report.
Saudi-based investment firm Alkhabeer Capital said in a report that the annual budget spending in GCC countries still continues to be driven almost entirely by income from the export of hydrocarbons although the contribution of non-hydrocarbon GDP to the overall GDP has significantly increased over the past two decades.
It added that since the global financial crisis, the GCC economies have consistently outperformed their global peers, supported by robust oil revenues.
Hydrocarbon revenues in Qatar and UAE account for close to 60 percent of the total revenues of the countries, while in Saudi Arabia and Kuwait, the figure is close to 90 percent and 93 percent respectively, Alkhabeer said.
This is in contrast to other resource rich economies such as Norway, where revenues from oil account for just about 30 percent of government revenues.
The report said: "The low contribution of the non-hydrocarbon sector primarily reflects the policy decision of maintaining a low or zero-tax environment to assist private sector activity.
"Although there has been speculation of introduction of GCC-wide value added tax, we do not expect such a decision in the foreseeable future.
Alkhabeer said the UAE, specifically Dubai, has been exemplary in diversifying revenue streams and building on its non-oil growth, which is projected by the IMF to expand by over four percent annually over the next few years.
With its recent rights for the World Expo 2020, Dubai will be able to transform itself into a hub for retail and wholesale trade and tourism.
Abu Dhabi has the highest hydrocarbon reserves and generates more than half of the GDP in the UAE. The government envisages cutting the capital's reliance on oil to 36 percent of GDP by 2030.
The Alkhabeer report said the overall fiscal position of the GCC remains stable but there are several key steps that need to be taken to lower dependence on oil revenues and mitigate long term risks that may arise as a result.
It noted: "With the IMF projecting dramatic change in the fiscal environment by the end of the decade, a close watch must be kept on the fiscal policy stance of the region's governments, which must be cognisant of the prospect of lower hydrocarbon revenues.
"A well poised strategy must be put in place to diversify the GCC economies and increase their non-oil revenues to mitigate long term challenges. Another pressing issue that must not be ignored is the subsidy bills for Gulf governments, with energy subsidy costs in some of the GCC countries as high as 28 percent of government revenues."