Reforms, diversification drive key to Gulf prospects for future growth, IMF says

Gulf Arab oil exporters are expected on average to put away about 33 per cent of their oil revenues over 2022-26, leading to an improvement in the overall fiscal balance, the International Monetary Fund said on Monday, stressing the need to resist temptations to revert back to pro-cylical spending.

Higher oil and gas prices are expected to increase the average current account surplus in the six nation Gulf Cooperation Council (GCC) to 9.7 per cent of GDP in 2022, up from 4.6 per cent of GDP last year, leading to an additional surplus of $275 billion, the IMF said in its latest report.

“Many (Gulf states) confirm that this time they will stick to their (fiscal discipline) plans....The proof is going to be in the pudding. Always you have temptations to go pro-cyclical,” IMF Middle East and Central Asia department director, Jihad Azour, told Reuters.

“Oil exporters must increase and strengthen their buffers and use this moment as a litmus test for sustainable diversification.”

Middle East oil exporters are expected to outperform peers with projected growth at 5.2 per cent this year following 4.5 per cent growth in 2021, boosted by high oil prices and robust non-oil GDP growth offsetting rising global interest rates and high food prices.

Growth is expected to moderate to 3.5 per cent in 2023 as oil prices decline and global demand slows, the Fund added in its latest report.

For top exporter Saudi Arabia, the IMF forecast growth of 7.6 per cent this year, slightly below the government’s forecast of eight per cent and compared with 3.2 per cent in 2021.

The kingdom’s oil sector growth was seen falling to 3.3 per cent next year, from 13.1 per centin 2022, while non-oil GDP is forecast at 3.8 per cent in 2023 versus 4.2 per cent this year.

“Our policy recommendations for Saudi as well as for other oil exporting countries is to keep the path of reforms that helps diversify the economy, improve productivity (and) avoid pro-cyclical policies,” Azour said.

The size of the non-oil sector has been growing in Saudi Arabia, the United Arab Emirates and other Gulf states with new sectors opening and attracting investment, while the financial sector is “well-capitalised, profitable and strong”, Azour said.

He later told a news conference on Monday that there was “relatively limited” impact on the financial sector from Gulf central banks largely matching US Federal Reserve rate hikes, despite weaker inflation in the region than the global trend. Most Gulf currencies are pegged to the U.S. dollar.

“So far this impact was limited and heavily compensated by...improvement of foreign reserves...as well as improvement in the fiscal situation which will reduce the need for governments to borrow and to crowd out the private sector,” he said.

Saudi Q3 GDP grows 8.6%

Meanwhile, Saudi Arabia’s gross domestic product expanded by 8.6 per cent in the third quarter compared with the same period in 2021, according to initial government estimates on Monday, as the world’s top oil exporter benefits from higher energy prices.

Growth was largely driven by a 14.5 per cent increase in oil activities, the General Authority for Statistics said, while non-oil activities expanded 5.6 per cent. — Reuters