Gulf oil exporters are continuing to adjust to low oil prices and the overall growth in the GCC region is expected to bottom out in 2017 and growth is set to pick up pace from 2018, Jihad Azour, Director of the IMF’s Middle East and Central Asia Department said at the Arab Strategy Forum 2017.
Oil prices have remained soft untill recently, despite the extension of the production cuts led by OPEC, which have dampened oil sector growth and contributed to large fiscal and external deficits.
The IMF expects non-oil growth is expected to recover to about 2.6 per cent in 2017 and 2.4 per cent in 2018. Both oil and non-oil growth for GCC countries have been revised down since the May 2017 Regional Economic Outlook.
“The reality of lower oil prices has made it more urgent for oil exporters to move away from a focus on redistributing oil receipts through public sector spending and energy subsidies. To this end, the region’s oil exporters have outlined ambitious diversification strategies, but medium-term growth prospects remain below historical averages amid ongoing fiscal consolidation,” said Azour.
These subdued growth prospects further highlight the need to speed up implementation of structural reforms. Oil exporters should continue pursuing deficit reduction plans to maintain fiscal sustainability and, where relevant, to support exchange rate pegs.
However, the progress is uneven across countries. Some countries will need to identify additional fiscal consolidation measures, while protecting social and growth-oriented expenditures. All countries would benefit from further improving their fiscal institutions and frameworks.
Low oil prices are also expected to dampen medium-term growth outlook of GCC countries. GCC non-oil growth is projected to be modest at 3.4 per cent in 2022, about half of the 6.7 per cent of 2000–15. GCC countries with larger buffers, such as Kuwait and the UAE, are adjusting their fiscal positions gradually. This is allowing them to keep non-oil growth broadly steady.
Oil Importing countries of the Middle East and North Africa and Pakistan (MENAP) region are expected to report resilient and inclusive growth in economic activity in the year ahead according to the Regional Economic Outlook of the International Monetary Fund (IMF).
Oil importing countries from the region are projected to expand by 4.3 per cent in 2017, well above the 3.6 per cent reported in 2016. This projected expansion—which is mildly stronger than the 4 per cent growth forecast in the May 2017 is expected to be broadbased, with growth forecast to accelerate in most oil importers, supported by domestic demand and exports.
In the medium term, growth in Menap oil importers is projected to continue improving gradually, with growth reaching 4.4 per cent in 2018 and averaging 5.3 per cent during 2019 to 2022.
However, this pace of growth will be insufficient to generate enough jobs to absorb those who are currently unemployed, as well as the millions of job seekers who will enter the labor market over the period.
The average fiscal deficit in Menap oil-importing countries is expected to narrow slightly from 6.8 per cent of GDP in 2016 to 6.6 per cent in 2017, and further to 5.6 per cent in 2018.
Nevertheless, significant vulnerabilities persist given the legacies of weak domestic revenue mobilization and high current expenditures (subsidies and wages) that, for most countries, have pushed public debt to more than 50 per cent of GDP. This trend has been exacerbated by the impact of valuation changes owing to currency depreciation, rising interest payments, and lackluster growth.
Sustained fiscal consolidation and reforms are required to address debt vulnerabilities. Debt levels are expected to fall by 2022 in most countries given anticipated consolidation, which should include carefully targeting current expenditures to protect social spending and improving the efficiency of public investment to mitigate the contractionary effect on growth.
Despite the anticipated pickup in growth, the IMF has called for bold structural reforms should be accelerated to enhance private sector activity and foster a more dynamic, competitive, and inclusive economy. Improving the business environment, including by improving the quality of infrastructure, will be critical.
Labour market and education reforms, improving productivity, and enhancing access to finance will also help. The balance of risks remains tilted to the downside. These risks include regional conflicts and security risks, the risk of social tension and reform fatigue, and the ongoing vulnerability of agricultural activity to weather and price developments.
Risks to the global environment that are also relevant include the risk of more rapid tightening of global financial conditions and the pursuit of inward-looking policies by advanced economies. On the upside, a strongerthan-expected pickup in activity in the euro area and other trading partners would lift economic prospects of these countries.
Global lineup of speakers expected
Organisers of the 10th Arab Strategy Forum say a global lineup of speakers will share on Tuesday their latest expert views and predictions on the state of the world for the year ahead.
Taking place at the Ritz Carlton–Dubai International Financial Centre, speakers are expected to also offer their takes on the current state of affairs in politics and business in the GCC, the wider Arab region as well as global geopolitical level.
The day-long event is hosted by Eurasia Group, Good Judgment and the International Monetary Fund, said organisers.
Political heavyweights such as Dr Robert Gates, former United States Secretary of Defence and Francois Hollande, former President of France, will gather in a panel discussion at the top of the forum to speak on the state of the world geopolitics in 2018.
Other notable experts slated to address delegates include Dr Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, who assumed the position on March 1, 2017.
Azour served as Lebanon’s Finance Minister from 2005-2008 and has held a wide range of posts in the private sector, said the IMF in a statement. Aazour will speak on the state of the Arab world economy in 2018.
Dr. Fawaz Gerges, Professor of Middle East politicis and International Relations at London School of Economics, will speak on the state of Arab World geopolitics in 2018.
Gerges is a Lebanese-American academic and author with expertise on the Middle East region as well as American foreign policy, and relations between the Islamic and Western worlds.
Dr. Joseph Stiglitz, American economist and a professor at Columbia University as well as a Nobel Memorial Laureate in Economic Sciences, will present his views on the state of the World Economy in 2018.
For further details, log on to www.arabstrategyforum.org
Source: Gulf News