IMF: Oil Price Decline Represents Key Challenge to GCC Countries

Oil demand would peak by around 2040, says IMF report. Reuters
Oil demand would peak by around 2040, says IMF report. Reuters
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IMF: Oil Price Decline Represents Key Challenge to GCC Countries

Oil demand would peak by around 2040, says IMF report. Reuters
Oil demand would peak by around 2040, says IMF report. Reuters

The International Monetary Fund (IMF) said analysis of past oil market developments revealed “a strong and sustained declining trend in the global oil demand, after accounting for income and population growth.”

Oil demand “would peak by around 2040 in our benchmark projection or much sooner in scenarios of a stronger regulatory push for environmental protection and faster improvements in energy efficiency.”

According to the IMF staff study, at the current fiscal stance, fiscal sustainability will require significant consolidation in the coming years.

Growth of global demand for natural gas is also expected to slow, the Fund said, “although it is expected to remain positive in the coming decades.”

The report said the oil market has experienced a significant turnaround in recent years due to technological advancements as well as climate change concerns. This represents a challenge to the six-nation Gulf Cooperation Council (GCC) that accounts for over one-fifth of global oil supply.

Long-term fiscal health requires that average annual non-oil primary deficits decline from a current level of 44 percent of non-oil GDP to less than 10 percent by 2060.

“Managing the long-term fiscal transition will require wide-ranging reforms and a difficult inter-generational choice. Continued economic diversification will be important but would not suffice on its own. Countries will also need to step up their efforts to raise non-oil fiscal revenue, reduce government expenditure, and prioritize financial saving when economic returns on additional public investment are low," the IMF added.

The sudden and unexpected oil price decline of more than 50 percent during 2014-15 was among the largest in the past century, according to the report. “It amounted to a transfer of nearly USD6.5 trillion from oil-exporting to oil-importing countries, in the form of cumulative oil revenue decline, between 2014 and 2018. Many oil-exporting countries are still adjusting to the effects of this oil price decline.”

The 2014 oil price slump led to large fiscal deficits but has also served as a catalyst for significant reforms in GCC countries, according to the report.

Global oil demand will peak around 2041 at about 115 million barrels a day and gradually decline thereafter as the demand-reducing effects of improvements in energy efficiency and increased substitution away from oil begin to dominate the weakened positive impact of rising incomes and population.



Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”