The Arab monarchies of the Persian Gulf's $2trn of government financial wealth could be gone by 2034 if current fiscal measures aren't ramped up, as oil demand nears peak levels, the International Monetary Fund said in a report.
The six-nation Gulf Cooperation Council (GCC) accounts for over one fifth of global oil supply, but economies in the region have been hit hard by a drop in oil prices in 2014 and 2015. Global oil demand may start falling sooner than expected, putting a strain on the finances the IMF warns.
"Global oil demand will peak around 2041 at about 115 million barrels a day and gradually decline thereafter as the demand-reducing effects of improvements in energy efficiency and increased substitution away from oil begin to dominate the weakened positive impact of rising incomes and population," the IMF said in a report, citing a benchmark projection.
The expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth"
Gulf states have for decades used their energy wealth to provide millions of citizens with government jobs, part of a social contract by rulers that rewards political acquiescence and educational attainment with employment for life.
But high-paying public sector jobs that demand little of workers have translated into low productivity and an entitlement culture, as well as rising costs as populations grow.
"At the current fiscal stance, the region's existing financial wealth could be depleted in the next 15 years," it said.
Gulf countries are trying to implement reforms and diversify their economies to lower dependence on oil income. Several countries have introduced taxes, including VAT and excise taxes, to shore up government revenue. These reforms may be too little too late, according to the IMF.
"All GCC countries have recognized the lasting nature of their challenge ... However, the expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth," it added.
Kuwait - which has one of the world's biggest sovereign funds - could need some $180bn in financing over the next six years in the absence of more drastic fiscal measures, the IMF said last month. Saudi Arabia expects a deficit of $50bn this year.