Economic growth in the Gulf will recover in 2018 from a contraction last year but remains vulnerable to volatility in crude oil prices, the International Monetary Fund (IMF) said on Tuesday.
The Fund predicted that an overall energy price recovery from 2015-2016 lows would spur the economies of the six-nation Gulf Cooperation Council (GCC) to grow by 2.4 percent in 2018 and 3.0 percent in 2019, after a contraction of 0.4 percent last year.
GCC states together pump over 17 million barrels per day (bpd) and depend heavily on crude revenues, however, it warned that growth outlook for oil exporters remains subject to significant uncertainty about the future path of oil prices.
Director of the Middle East and Central Asia Department at the IMF, Jihad Azour announced that economic reforms are going in the right direction in Saudi Arabia and the United Arab Emirates, including expanding the role of women in the workplace.
“Well-designed public finance reforms can help policymakers reduce debt while preserving growth and protecting the most vulnerable,” said Azour.
“The changing global economic environment is bringing new challenges for the region. Near-term prospects for oil exporters in the Middle East and North Africa region have improved modestly on the back of higher oil prices and a slower pace of fiscal consolidation,” Azour indicated during a press conference in Dubai, UAE.
He indicated that growth in oil importers is uneven, with rising oil prices adding to fiscal pressures in many countries. Risks from escalating global trade tensions, further tightening of financial conditions, the oil price trajectory, and geopolitical developments cloud the outlook.
The Director asserted that fiscal and structural reforms to increase resilience and promote private sector growth need to be sustained and even accelerated if the region is to become a place where all citizens have the equal opportunity to build a more prosperous future.
“The IMF stands ready to assist in this journey through policy advice as well as technical and financial assistance,” reiterated Azour.
Saudi Arabia, the region’s largest economy, is forecast to grow at 2.2 percent this year and 2.4 percent next year, after contracting 0.9 percent in 2017, as the oil price recovery helps “to improve the outlook.” It indicated that it is not changing its forecasts for a recovery in Saudi Arabia’s economy.
Growth in GCC is expected to recover due to the implementation of public investment projects, including those consistent with the five-year development plan in Kuwait and ongoing preparations for Expo 2020 in the United Arab Emirates (UAE). In Bahrain, the expected fiscal consolidation is projected to dampen non-oil activity, despite rising aluminum production capacity.
Growth in non-GCC oil exporters in the MENA region, which include Iran, Iraq, Algeria, and Libya, is projected to slow to 0.3 percent in 2018, from three percent the previous year, and pick up to 0.9 percent in 2019, the IMF said.
“Notwithstanding recent oil price developments and some increase in futures prices relative to the May 2018 Regional Economic Outlook Update: the Middle East and Central Asia, markets continue to expect oil prices to peak in 2018 and then decline gradually to about $60 a barrel by 2023.”
With the recovery in oil prices and non-oil activity, combined in some countries with revenue mobilization measures - like the introduction of a value-added tax in Saudi Arabia and the UAE - fiscal balances are expected to improve notably across MENAP oil exporters.
In several countries, including Saudi Arabia and the UAE, higher oil revenue has more than offset increases in public spending.
“The overall fiscal deficit for MENAP oil exporters is therefore projected to decline from 5.1 percent of GDP in 2017 to 1.6 percent in 2018 and 0.1 percent in 2019, and average 1.1 percent during 2020–23,” the IMF noted.
