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IMF sees rising demand behind record oil prices

“We...see clearly a need for an increase in the investment in the oil process, especially in refinery process,” he said. “That, of course, demands that both consumers and producers ... plan clearly for an increase in the refinery capacity of oil products.”

Strong oil demand from China and India, political risk in Nigeria and Iraq and disrupted supplies in the United States have driven crude prices to record highs. Oil prices have remained comfortably above $50 for the past three weeks. Rato said governments should not shield consumers from rising oil prices “so that consumers should realise the new prices of energy”.

Agustin Carstens, Rato’s deputy, said on Monday that 2005 world economic growth could be lower than the 4.3 per cent forecast by the IMF a month ago because of high oil prices.

Rato said other global economic factors would partly compensate for higher oil prices.

“We have to take into consideration that in one side there is an increase in the oil prices, so the downside risk has increased but also there are other effects of world growth that will, in part, compensate this,” Rato said.

“We will have to see in the next few months how these two forces evolve,” said Rato, who has been on a tour of the Middle East.

The International Monetary Fund (IMF) urged Egypt yesterday to begin implementing a series of measures it says will help economic recovery, spur growth and raise the standard of living.

Rato told Egyptian President Hosni Mubarak that the main challenge for Cairo was to pay off part of its foreign debt, which hit 28.7 billion dollars in 2003.

He also urged the government to take immediate action to reduce a 60-billion-dollar budget deficit that has been growing faster than gross domestic product, de Rato told journalists.

Egypt, said the top IMF official, should promote transparency in government spending and accelerate reforms, particularly tax reforms, and continue liberalising the economy and privatizing state-owned enterprises.

The reform-minded government of Prime Minister Ahmed Nazif that took office in July has pledged to turn around Egypt’s ailing economy and rein in high inflation, skyrocketing unemployment and the huge debt burden. Egypt announced in September that it was ready to allow foreign companies to manage state-owned businesses but would not give up control of those firms it sees as strategic.

De Rato was in Egypt on the final leg of a Middle East tour that also took him to Lebanon and Saudi Arabia.