Fast cars whiz around, malls are full of expensive luxuries and cranes dominate the skyline. But scratch the shimmering surface of the Persian Gulf and you soon find countries hurting from the low price of oil, currently around $40 a barrel. Growth is slowing and unemployment is rising. Policymakers even dare utter a three-letter "t" word until recently taboo: tax.

Oil is central to the six Gulf Cooperation Council (GCC) states, which have used the windfall of the past few years to spend lavishly. Unlike many other oil exporters, they have high foreign-exchange reserves and low debts to cover short-term gaps. But public spending is generous and the private sector is heavily reliant on oil to boot. To be sustainable in an era of lower prices, the rulers must change the structure of their economies.

The International Monetary Fund reckons the lower oil price knocked $340 billion off Arab oil-exporting states' government revenue in 2015. This year is looking worse. Moody's, a ratings agency, this month downgraded Bahrain and Oman and put on watch the other four GCC states: Saudi Arabia, Kuwait, the United Arab Emirates (UAE) and Qatar.

Oil receipts typically account for more than 80 percent of GCC government revenue. Dubai, one of the emirates making up the UAE, is an exception, with oil accounting for only 5 percent of revenue. That is because it has successfully diversified: tourism and services account for most of its government revenue.

Governments are reacting to the squeeze with a mixture of strategies, drawing down reserves and taking on debt on the one hand, and imposing spending cuts on the other. Last year they made tweaks, such as curbing benefits for public servants. This year will be tougher. Oman has told all state-owned enterprises to remove perks such as cars. Qatari companies including Al Jazeera and the Qatar Foundation have laid off employees. With such tweaks Kuwait, the UAE and Qatar, which have small populations and high foreign-exchange reserves, can get by for a decade.

But the other three states are in a trickier position. Oman and Bahrain have relatively low reserves. Oman posted a larger-than-expected budget deficit in 2015, at almost 16 percent of gross domestic product (GDP). By the end of 2017 Bahrain's debt is expected to reach 65 percent of GDP. It needs an oil price of $120 to balance its books. The two have other concerns, too. Bahrain's Shia-majority population bristles at being ruled by a Sunni monarchy. There is a lack of leadership in Oman; Sultan Qaboos is, again, in Germany being treated for suspected cancer.

Observers are particularly concerned about Saudi Arabia, which President Obama will visit to meet Gulf leaders next month. It has huge foreign-currency reserves — about $740 billion at the end of 2014 — but is drawing them down at a clip, taking out about $115 billion in 2015.

Happily, predictions that the oil price will not rise quickly are focusing minds on all sorts of structural reforms. "This is good for the Gulf; it will be a rich period for policymaking," said Nasser Saidi, an economist in Dubai. The UAE cut fuel subsidies last year, and other states are following suit. Bahrain removed subsidies on some food items. Saudi Arabia raised the cost of electricity and water.

However, there is less room for savings from cuts than there was a few years ago. And outgoings remain high. It is not just that the Gulf states are committed to large infrastructure projects — metros, financial centers, ports and railways. They spend billions of dollars on wages and handouts to their rapidly growing populations. The relatively young states need to spend cash on education. And they are embroiled in costly wars in the region.

Making matters worse, cuts in spending affect the nascent private sectors where, apart from the UAE and Bahrain, most activity is linked to oil, such as services to the industry; and to public spending, such as construction. Economic growth is slowing.

The GCC states need to do much more if the books are to balance in the future. Diversification, long talked about, has to happen now, although it is harder to do it in bad times. Plans look good on paper — encouraging tourism and logistics, for example — but more uncertain in real life. Saudi Arabia is not keen on Westerners trampling around the kingdom.

Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.