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IMF predicts subdued growth for GCC in 2015
Dubai - The IMF urged the GCC economies to adjust to the new reality of oil prices, which are expected to remain low for some time.
| Iran opening a positive news for global economy Dubai: The IMF on Wednesday said the recent agreement to remove most economic sanctions on Iran will be positive news for the global economy. Iran's return to the global oil market is expected to result in increased global supply of oil, and the removal of the sanctions will open up new trade and investment opportunities, the IMF said in its latest report issued in Dubai. "With the easing of international sanctions, the country's economic prospects have improved substantially and, through increased trade and investment, benefits are expected to flow to its economic partners as well," IMF Middle East and Central Asia Department director Masood Ahmed said on Wednesday. The IMF report said traditional economic partners such as Europe, Turkey, and the UAE stand to gain, as do China and India, whose trade with Iran increased during the sanctions period. It also projected that the CCA countries could also benefit, especially if over time they become transit hubs for increased trade between Iran, Asia, and Europe. "The country's growth could reach four per cent in the medium term, or even higher if the easing of sanctions is accompanied by domestic economic reforms to ensure macroeconomic stability and promote inclusive growth," Ahmed said. To a question, he said fund is planning to soon send its teams to Jordan and Iraq for talks that may lead to more aid for the two countries. "Jordan has asked for another loan programme and the fund hopes to conclude talks with the kingdom in the first quarter of next year," he said. The fund is also planning to send a team to Iraq next month to negotiate a 'staff-monitored programme' that may help unlock more aid for the country contending with lower oil prices and a war with militants. muzaffarrizvi@khaleejtimes.com |
In its latest regional assessment for the Middle East, North Africa, Afghanistan and Pakistan (Menap), the fund said the GCC (Gulf Cooperation Council) economies would grow at 3.3 per cent this year as against 3.4 per cent in 2014.
The growth may slip to 2.8 per cent in 2016 as the region's oil exporters have lost $360 billion in revenues this year due to record low oil prices.
The IMF urged the GCC economies to adjust to the new reality of oil prices, which are expected to remain low for some time.
"Achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for more than 10 million people anticipated to be looking for work by 2020 in the region's oil-exporting countries," IMF Middle East and Central Asia Department director Masood Ahmed said at the report's launch at Dubai International Financial Centre.
The report examines the impact of conflicts and low oil prices on the region's oil-exporting and oil-importing countries. It also examined the impact of Iran's nuclear deal with world powers on its economy and international trade in general and oil market in particular.
The IMF report, which forecasts 2.5 per cent growth for Middle East in 2015, said economic activity could pick up to four per cent next year if regional conflicts ease and sanctions on Iran are alleviated.
Ahmed said two key factors -- uncertainty due to deepening crises and low oil prices -- are shaping the region's outlook.
Elaborating, he said conflicts are spreading and deepening, exacting a horrendous human toll on the region as well as a significant impact on economic activity.
"Syria's GDP has declined by 45-60 per cent since the start of the conflict, while Yemen's has dropped by nearly 30 per cent in the past year. These conflicts have given rise to large numbers of displaced people and refugees, on a scale not seen since the early 1990s," Ahmed said.
In countries hosting refugees, Ahmed said, economic, social and political pressures have risen sharply. And the conflicts are having other cross-border spillover effects including setbacks to trade and tourism, worsening security, and deteriorating investor confidence.
"For the region's oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360 billion this year alone," Ahmed told reporters.
He said the near-term outlook for the Menap region is dominated by geopolitical and oil price developments.
"Regional uncertainties arising from the complex conflicts in Iraq, Syria, Yemen, and Libya are weighing on confidence. Low oil prices are also taking a toll on economic activity in the oil-exporting countries."
Ahmed called for a 'concerted effort' by the international community to help refugees and stabilise the affected countries, while providing additional financing to countries hosting large numbers of refugees.
He said the budgets of the GCC members are facing an average deficit of 13 per cent of GDP this year due to slump in oil prices that remain in place for the foreseeable future. He said the combined budget deficit of the GCC nations will exceed $1 trillion in next five years as oil prices dropped to below $50 a barrel from $115 in June 2014 due to over supply and weak demand.
Over the medium term, he said putting fiscal positions on a stronger footing will require efforts to streamline spending, reform energy pricing, and broaden non-oil revenue sources.
"The key to resolving the challenge of absorbing millions of new job-market entrants expected over the next few years lies in accelerating economic diversification by creating incentives for private firms to expand activities that do not depend on government spending or oil," Ahmed emphasised.
He said most nationals in the GCC states work in public sector and this model will have to be changed in coming few years.
The IMF director applauded the UAE's recent move to remove subsidies on fuel and termed it a 'good example' for other GCC countries. He also advised the GCC governments to examine their low taxation system to generate new revenue sources outside the oil sector.
"GCC countries are in a strong position to adjust to the new reality of oil prices as they wisely built up financial reserves during the time when oil was trading in high range," Ahmed said.
The IMF report also said the region's oil-importing countries should experience a pickup in growth averaging about four per cent in 2015-16 due to lower oil prices. But the picture is not universally rosy, as some oil-importing countries such as Lebanon, Jordan, and Tunisia are being profoundly impacted by intensifying regional conflicts, which are more than offsetting the benefits from lower oil prices.
"There are risks to the outlook for this group. Slower growth in the GCC countries could lead to lower remittances; borrowing costs - and risk aversion - are likely to increase as liquidity tightens in global and regional markets, while the likely slowdown in emerging markets could impact exports," Ahmed said.
Earlier in his welcome address, deputy chief executive officer of the DIFC Authority Arif Amiri said that the near-term economic challenges should not be allowed to obscure the upward economic trajectory of the overall region and also highlighted the value of the DIFC as a hub to access cross-border trade and investment opportunities.
muzaffarrizvi@khaleejtimes.com
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