Gulf states must fast-track AI and reforms to sustain growth, World Bank says

UAE and Saudi Arabia praised for leading six-country bloc in diversifying exports

The Dubai skyline. The expansion of non-hydrocarbon exports is well under way in the Gulf, with the UAE leading the charge in diversification, the World Bank said. AFP

Structural reforms, artificial intelligence readiness and co-operation in digital infrastructure are critical to bolstering Gulf countries' economic diversification and digital transformation, the World Bank said in its latest report.

The UAE and Saudi Arabia are leading the Gulf's economic growth this year, with forecasts of 4.8 per cent and 3.8 per cent expansion, respectively, spurred by AI-driven digital transformation, the Washington-based lender said on Thursday.

The UAE, which continues to post broad-based growth with a balanced mix, is leading the Gulf Co-operation Council bloc in diversifying its export base.

However, maintaining the GCC economies' growth trajectory will require continuous reforms to mitigate risks including oil price volatility, geopolitical tension and a slowdown in reform implementation, the World Bank said.

“Diversification and digital transformation are no longer optional,” said Safaa El Tayeb El Kogali, World Bank division director for the GCC. "They are essential for long-term stability and prosperity. Strategic investments in non-oil sectors and innovation will be critical to sustaining growth and stability.

“The GCC’s digital leap is remarkable. With robust infrastructure and growing computing power, skills and competencies in AI capabilities, the region is well-placed to lead in innovation, provided we address labour and environmental challenges proactively.”

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For years, governments in the Gulf have been pushing for economic diversification, investing in infrastructure, reshaping regulations and preparing for a time when their societies will no longer be dependent on natural resources as the main driver of prosperity. This has centred around developing non-oil sectors, from tourism to manufacturing, and by investing heavily in AI and advanced technology.

"The GCC’s journey towards diversification is ongoing and requires sustained commitment to reform, adaptability to global and regional developments, and a continuous focus on real sector and fiscal transformation," the World Bank said. "The choices made today will shape the region’s stability and prosperity for years to come."

In 2025, the GCC's economies have shown "resilience" and gradual recovery, despite ongoing and regional uncertainties, the report said. This is supported by diversification work, infrastructure investment and ongoing reform.

The phasing out of Opec+ production cuts are also boosting the recovery in oil sectors. At the same time, fiscal pressures have risen substantially in 2025 due to declining oil prices that make it even more crucial to implement diversification reforms, the lender said.

"Continued reform momentum under national visions and prudent fiscal management are critical to sustaining growth and advancing diversification progress," it said.

The UAE "stands out" for its balanced growth between non-oil and oil sectors. But despite diversification, fiscal and external balances remain dependent on oil receipts, the World Bank said.

Accelerating AI adoption

The report highlights the Gulf’s rapid digital transformation and accelerating adoption of AI. Advanced telecom networks, with 5G coverage exceeding 90 per cent, high-speed internet and affordable connectivity are all features of Gulf economies.

Significant investment in data centres and high-performance computing systems are driving AI readiness, with Saudi Arabia and the UAE emerging as regional and even global leaders, it said. Their progress is supported by start-ups, strong venture funding and government integration of generative AI applications.

Women’s participation in Stem fields surpasses the global average, reinforcing the region’s digital competitiveness. To maximise the benefits of diversification and digital transformation, the report recommends supporting small and medium-sized enterprises (SMEs) in adopting AI, implementing reskilling programmes to mitigate labour market disruption and ensuring environmental sustainability.

Regional co-operation on digital infrastructure and the establishment of AI centres of excellence will be "critical" to building a unified digital market, and advancing transformation across the Middle East, North Africa, Afghanistan and Pakistan region, the World Bank said.