Chasing 270, India were bowled out for 248
Gulf oil exporting countries are projected to gain over $1.4 trillion in additional profit in the coming four to five years as oil rates keep soaring, according to a senior IMF official.
However, the war in Ukraine and related sanctions have triggered a sharp increase in commodity prices, which will add to the challenges facing countries in the Middle East and North Africa — particularly the region’s oil importers, Jihad Azour, Middle East and Central Asia Department at the IMF, wrote in blog.
After leaping to a peak of $130 per barrel following Russia’s invasion, oil prices are expected to settle at an annual average of around $107 in 2022, up $38 from 2021, according to the IMF’s latest World Economic Outlook. Similarly, food prices are expected to increase by an additional 14 percent in 2022, after reaching historical highs in 2021, he wrote.
The IMF official said he expects the oil price, compared to last year, to increase by 55 per cent, which will improve their growth prospects, but also it will be a big windfall in terms of capital flows. “If we look at the next four to five years to give you the order of magnitude, we are expecting more than 1tn to $1.4tn of additional revenues to oil exporting countries, especially to the GCC,” Azour was quoted as saying in a recent panel discussion.
Azour noted that the surge in oil prices comes at a precarious time for the region’s recovery.
“In our REO, we revised up our forecast for growth in the Middle East and North Africa as a whole by 0.9 percentage points to five per cent, but this reflects improved prospects for oil exporters helped by rising oil and gas prices.”
“For oil-importing countries, we marked down our projections, as higher commodity prices add to the challenges stemming from elevated inflation and debt, tightening global financial conditions, uneven vaccination progress, and underlying fragilities and conflict in some countries,” he said.
Energy subsidies alone could increase by up to $22 billion for oil-importing countries in 2022. This represents money that could otherwise have been spent on more targeted support or other priority measures. In addition to existing subsidies, some countries have introduced measures to smooth the impact of higher prices, such as direct transfers and lower tariffs on food, which will add to fiscal costs.
“Higher inflation is one of the most direct impacts of rising commodity prices. Food prices accounted for about 60 per cent of last year’s increase in headline inflation in the Middle East and North Africa, excluding the countries of the GCC. Hence, we project inflation to remain elevated in the region in 2022 at 13.9 per cent — a significant upward revision relative to our previous projections in October,” he said.
“This is no surprise given the high dependence of many economies in the region on shipments of foreign food (about one-fifth of total imports), and the heavy weighting of food in consumption baskets (more than one-third on average) and even higher in the case of low-income countries,” Azour pointed out.
The Ukraine war has also heightened concerns about food insecurity, given the region’s dependence on wheat imports from Russia and Ukraine and the rise in prices, which makes it harder for people to afford food.
“The situation is particularly concerning for fragile and conflict-affected states, since strategic reserves cover less than 2.5 months of net domestic consumption. Overall, rising food prices and potential wheat shortages affect the poor more because they allocate a higher share of their expenditure to food. This will add to poverty and inequality and heighten the risk of social unrest,” the IMF official said.
Chasing 270, India were bowled out for 248
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