RIYADH: Economies across the Gulf Cooperation Council region are closing the gap with advanced nations when it comes to digital transformation, according to a new International Monetary Fund report.
The study found that the region has rapidly advanced in digital infrastructure and government services since the pandemic but still faces challenges in financial inclusion, corporate digital adoption, and workforce readiness for artificial intelligence.
The findings come as Gulf states accelerate efforts to diversify their oil-dependent economies through technology-driven growth. Saudi Arabia has launched multi-billion-dollar initiatives such as NEOM, Dubai has pushed forward the Digital Silk Road, while Bahrain and Qatar are emerging as fintech hubs.
“Digitalization is transforming the global economic and financial landscape, with the potential to boost productivity and promote diversification in the Gulf Cooperation Council,” stated the report.
“The COVID-19 pandemic has significantly accelerated the digitalization agenda globally, creating new opportunities for the digital economy as an increased number of activities have shifted online,” it added.
The IMF report highlighted that the GCC’s digital acceleration has been particularly notable in public sector services and connectivity. The region’s “GovTech Maturity Index,” which measures digital government transformation, now rivals or exceeds the average of advanced economies.
Saudi Arabia and the UAE lead the region, with their GTMI scores ranking above the 95th percentile globally.
“Most GCC countries have a higher GTMI than the AE (advanced economy) average in 2022, with substantial progress made in every GCC country since the onset of the pandemic,” the report said.
Bahrain, Kuwait, and Saudi Arabia saw particularly sharp improvements, driven by initiatives such as Bahrain’s Tawasul platform for citizen engagement and Saudi Arabia’s Vision 2030 digital economy push.
The report noted that progress has been uneven, with Kuwait lagging in digital citizen engagement and core government systems, while Oman has room for improvement in public service delivery.
“Kuwait, for instance, trails behind its regional counterparts in critical areas, such as digital citizen engagement and the robustness of core government systems,” the IMF report noted.
Fintech growth and financial inclusion gaps
The financial sector has also seen rapid digitalization, particularly in fintech.
Saudi Arabia and the UAE dominate regional investment in this area, with Saudi fintech funding deals surging 80-fold between 2019 and 2022.
Regulatory sandboxes, first introduced in Bahrain, have spread across the GCC, fostering innovation in digital banking and payments.
Despite these advances, the IMF noted that financial inclusion remains a challenge. While access to bank accounts and digital payments has improved, the GCC still lags behind advanced economies.
The report explained that digitalization is strongly correlated with financial inclusion, particularly in emerging markets. A one-unit increase in the IMF’s EDAI — a composite measure of digital progress — is associated with a 0.76 percentage point rise in financial inclusion in emerging markets.
Bahrain and Saudi Arabia stand out as having the highest potential gains from further digitalization. The estimated coefficients of the interaction term for both the countries are positive and significant, indicating a larger-than-EM average effect of digitalization on financial inclusion, the report stated.
Corporate sector and AI
The corporate sector’s digital adoption varies widely across the GCC. While the region boasts world-class digital infrastructure, local production of digital goods and services remains limited.
The report highlighted that Saudi Arabia’s share of inputs from digital industries is significantly lower than in countries at the forefront of digitalization.
Companies in digitally intensive industries, however, have shown greater resilience during economic downturns. “Firms in industries with high intensity of digital inputs suffer smaller revenue losses, and so do firms in digital-intensive industries,” the report added.
Artificial intelligence adoption is rising, with 62 percent of respondents in a McKinsey survey reporting AI use in at least one business function. The UAE and Saudi Arabia are regional leaders in AI preparedness, but gaps persist in digital innovation and regulations.
“The GCC is better prepared than an average emerging market in embracing AI, but gaps remain relative to advanced economies,” the IMF report stated.
Policy priorities: skills, regulation, and inclusivity
The report identified several key areas where the GCC needs to concentrate its efforts to maintain and build upon its digital progress.
One major focus should be on enhancing digital skills, as the region currently trails behind advanced economies in both basic digital literacy and more advanced ICT capabilities.
Implementing comprehensive programs to upskill workers, with particular emphasis on emerging fields like artificial intelligence and cybersecurity, will be crucial for future growth.
Another critical area is the strengthening of fintech regulations. While regulatory sandboxes have successfully encouraged innovation in the financial technology sector, the GCC now requires more comprehensive regulatory frameworks to ensure long-term stability and proper consumer protections as these digital financial services expand.
The report also highlighted the importance of boosting digital adoption among corporations, especially small and medium-sized enterprises. Wider integration of digital tools across businesses could significantly improve overall productivity and make companies more resilient to economic fluctuations.
Finally, as automation and AI continue transforming the job market, the IMF findings noted that GCC will need to proactively address potential labor market disruptions. This includes developing robust social safety nets and creating effective retraining programs to help workers transition into new roles, minimizing the negative impacts of technological displacement on the workforce.
The IMF emphasized that cybersecurity and data protection reforms are also key to maintaining trust in digital ecosystems.
A regional leader with room to grow
The IMF report’s findings underscore that while the GCC’s digital transformation has been impressive, the journey is far from over. With targeted policies, the region can solidify its position as a global digital hub while ensuring that the benefits of technology are widely shared.
“Decisive implementation of the GCC countries’ comprehensive reform agendas — with a special focus on bridging the digital divide and ensuring labor market inclusiveness — will support their efforts to further digitalization,” the report said.
