GCC must cut deficits to keep currency pegs: IMF

Bloomberg

Gulf oil exporters must cut spending and narrow their budget shortfalls to keep their currencies pegged to the dollar, the International Monetary Fund said.
While substantial foreign assets have allowed the countries to fix the value of their currencies to the greenback, keeping the status quo comes at a price as lower crude prices strain public finances, the lender said in a report titled “Learning to Live with Cheaper Oil.”
“When a country faces prolonged fiscal and external deficits, policy adjustment must come from fiscal consolidation measures,” the IMF said in the report authored by Martin Sommer, deputy chief of its regional studies division. Maintaining the currency pegs “will require sustained fiscal consolidation through direct expenditure cutbacks and non-oil revenue increases,” it said.
Gulf oil producers’ budgets swung from surplus to deficit as Brent crude fell by as much as 75 percent from June 2014 to January this year, before a partial recovery in recent months.