Saudi Arabia risks running out of financial assets in less than five years amid a drop in oil prices, the International Monetary Fund has warned.

The IMF said oil-exporting countries are facing tough choices as they brace for a $360billion fall in revenues this year.

Among the hardest hit is the world's largest oil exporter, Saudi Arabia, which generates about 90 per cent of its income from the sector.

The IMF estimates the kingdom will post a budget deficit of more than 20 per cent of gross domestic product this year, amounting to between $100 billion to $150 billion.

An oil refinery on the east coast of Saudia Arabia near the Persian Gulf city of Dhahran. The International Monetary Fund has warned that Saudi Arabia risks running out of financial assets within five years amid a drop in oil prices unless it reigns back on public spending and diversifies its exports

This compared to less than two per cent last year, the lowest in the world.

Under current policies, Saudi Arabia 'would run out of buffers in less than five years', the IMF said, adding that for the UAE, Kuwait and Qatar, however, they will last for more than 20 years.

The IMF's Middle East economic outlook report, launched yesterday, said reforms in Gulf Arab countries that create more jobs and diversify economies outside the oil sector are 'all the more urgent.'

Masood Ahmed, IMF director of the Middle East and Central Asia, said: 'There are difficult decisions that will need to be made in terms of cutting spending.

'You could try to postpone some capital projects... you could look at energy prices, which are still subsidised or below international prices in most of the countries in the region.'

Adjustments should include finding ways to cut public spending and diversify income away from oil, said Ahmed, pointing mainly at the need to cut subsidies and reduce the public sector wage bill.

Ahmed said the six oil-exporting countries of the Gulf Cooperation Council could gain $70 billion if they raised local energy prices to international market rates.

A view over the Saudi capital Riyadh. The IMF estimates the kingdom will post a budget deficit of more than 20 per cent of gross domestic product this year, amounting to between $100 billion to $150 billion

This year, the United Arab Emirates slashed gasoline subsidies, but the decision to hike prices in a country where the majority of residents are foreigners was likely less challenging than it will be for other GCC countries.

More sensitive and difficult changes recommended by the IMF include reigning back spending on the public sector wage bill, which employs most Gulf citizens.

Meanwhile, the GCC countries of Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain will need to create two million jobs in the next five years to accommodate their large young population and keep unemployment levels from rising.

War-wracked countries like Syria, Libya and Yemen continue to be the most devastated economically in the region.

Neighboring countries like Jordan and Lebanon hosting refugees are also facing sustained economic pressures.

Iraq's oil exports have allowed its economy to stay afloat, but it is stagnating, Ahmed said.

Libya and Yemen have lost a quarter of their GDP due to conflict and instability in the aftermath of the Arab Spring. Syria's economy has shrunk by half since the start of its civil war in 2011.

'If the war stops tomorrow in Syria and if they grow every year at three per cent thereafter it will still be 20 more years, so a whole generation after 2010, before they get back to the level of income that they had before the war,' Ahmed said.

Iran's prospects, meanwhile, are expected to improve with growth reaching at least 4 percent in the medium term through increased trade and investment with the easing of international sanctions.

Ahmed said Iran's economy will not undergo an immediate transformation, but sectors like tourism and the automobile industry can be strengthened to attract and sustain international investor interest.