A combination of low oil prices and intensifying conflict in the region will impact the growth rate of oil exporting countries in the Middle East, the International Monetary Fund said in a statement.
Speaking ahead of the launch of the IMF’s regional economic outlook, the fund’s director of the Middle East and Central Asia Masood Ahmed said: “If you look at the growth rate, it is a little short of two per cent for the oil exporters. That is almost one per cent below the number for 2014.
“Of course, there is a lot of variation even among the oil exporters. The GCC countries are doing better than the others. Their growth rate is about 3.25 per cent this year and will slow down a little bit more next year to just below three per cent as they continue with their process of fiscal adjustment.
“Outside of the GCC, this year actually there is virtually no growth in the oil exporters. So, countries like Yemen, Libya and Iraq are impacted by conflict.”
Oil prices have fallen by around 50 per cent since June 2014, touching a low of $45 in January this year. Although prices have recovered intermittently, Masood estimated that export earnings of oil exporting countries in the Middle East and North Africa region fell by $360bn in 2015 compared to 2014. In May this year, the IMF had estimated export earnings of Middle East countries to fall around $380bn by 2015. The fund, however, did not say whether it has revised this forecast for the region.
“One consequence of this is that budget deficits in these countries have increased dramatically because they have continued to spend from savings but that still means that their current expenditure is now higher than their income,” he said.
“Budget deficits of the oil exporters are, on average, now just about 13 per cent of GDP this year.”
Masood added that he expected oil prices to remain low for the next few years, saying that oil exporting countries might find it hard to achieve fiscal sustainability.
“They will have to undertake gradual but sizable and sustained consolidation on the budgetary side,” he said.
In addition, the added challenge of creating jobs for 10 million people set to enter the workforce by 2020 will also hinder regional countries from achieving fiscal sustainability, the IMF noted.
“They need to try and reduce their spending in a way to balance it with their income over the next five years, but at the same time they have to recognize that they have to provide jobs for a number of people and, of course, in many of these countries, nationals, in particular, have mainly been working in the public sector rather than in the private sector,” said Masood.
Although oil importing countries in the region have benefitted from low oil prices, IMF warned that a slowdown in the Gulf countries could lead to a reduction in remittances. He also noted that increased international interest rates could lead to higher borrowing costs for these economies while a slowdown in emerging markets could hit the exports from these countries.
“So, our message to the oil-importing countries is to use this favorable window and the tailwind that comes from lower oil prices to prepare for a period when there could be more risks ahead and to do this by reallocating their spending from consumption to investment, because investment will generate growth, and by improving the climate for private investment in the country,” said Masood.