The World Bank has lowered its 2016 growth forecasts for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE due to lower oil prices.
The organisation said its new outlook assumes an average oil price of $41 per barrel in 2016, down from $51 per barrel in January, and that prices will rise to $50 in 2017 and $53 in 2018.
Based on this criteria, it expects the UAE economy to grow 2.0 per cent this year from a previous prediction of 3.1 per cent, Saudi Arabia 1.9 per cent down from 2.4 per cent and Qatar 3.3 per cent down from 6.8 per cent.
In addition it projected growth in Oman this year to drop to 1.6 per cent from 3.2 per cent, Kuwait from 2.4 per cent to 1.3 per cent and Bahrain from 2.7 per cent to 2.2 per cent.
“Both oil-exporting and oil-importing countries face substantial fiscal challenges. While expenditure cuts in oil exporters implemented in 2015 and underway in 2016 are a step in the right direction, additional cuts are needed to achieve fiscal sustainability, together with a boosting of non-oil-sector revenues—through tax increases, policy changes encouraging private sector participation and investment, or other changes,” the organisation noted in its June report.
The World Bank went on to warn that the recent reliance on sovereign debt issuance, like Qatar’s record bond issue last month, meant countries “should ensure that they have solid debt management frameworks in place”.
It said if annual oil prices do not reach a “trough” in 2016 it would likely trigger an additional downgrading of the forecast for oil exporters in the region.
“The downward pressure on growth from fiscal consolidation will be reinforced in the GCC countries by tightening monetary policy in tandem with any rate increase in the United States,” the bank said.
More broadly, the World Bank said the Middle East and North Africa region would grow 2.9 per cent this year, largely due to the lifting of sanctions against Iran.
It also reduced its global growth forecast from 2.9 per cent in January to 2.4 per cent in June.
Brent crude prices recently broke the $51 a barrel mark after hovering around $50.