The GCC countries face important challenges of improving economic efficiency; diversifying their economic base, given their excessive reliance on depletable natural resources; and more important, providing increased employment opportunities to a growing indigenous labor force. To help achieve their objectives, the GCC countries have reduced financial imbalances and are gearing their medium-term economic policies toward achieving high economic growth through liberalization, deregulation, and promotion of private sector activity. These challenges and the required policy reforms to deal with them have important implications for the GCC financial systems, which will need to adapt to the changing demands of the private sector, support the structural changes in the period ahead, and position themselves to compete in the global economy.