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Dubai: 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, despite the extension of the production cuts led by Organisation of the Petroleum Exporting Countries (Opec), which have dampened oil sector growth and contributed to large fiscal and external deficits.
Non-oil growth in oil exporting countries is expected to recover to about 2.6 per cent in 2017 and 2.4 per cent in 2018, according to the IMF’s latest Regional Economic Outlook (REO). Both oil and non-oil growth for GCC countries have been revised down since the May 2017 REO.
“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.
Lower oil prices have contributed to large fiscal deficits across the Middle East, North Africa and Pakistan (MENAP) oil exporters. Deficits jumped from 1.1 per cent of GDP in 2014 to 10.6 per cent of GDP in 2016, but are expected to ease to 5.2 per cent of GDP this year on the back of a modest recovery in oil prices and significant deficit reduction efforts. 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 importers
Oil Importing countries of the MENAP region are expected to report resilient and inclusive growth in economic activity in the year ahead, according to the 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 REO — is expected to be broad based, 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 2019–22. “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 labour market over the period,” said Azour.
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 mobilisation 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 lacklustre 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 said 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.
Arab countries need to focus on youth unemployment
SME financing is key to new jobs
Dubai: To address the high youth unemployment across the Arab region, countries in both oil exporting and oil importing countries in the region should implement labour market and education reforms, improving productivity, and enhancing access to finance for small and medium enterprises, Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said at the Arab Strategy Forum 2017.
“The SME sector accounts for more than 60 per cent of new jobs in the region. Unfortunately, this sector is facing acute shortage of funding from both conventional institutional channels. While urgent financial sector reforms are needed to make bank financing available to the sector, governments should facilitate fund flows into the sector from other funding channels such as private equity,” said Azour.
According to the IMF, for the region as a whole, 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.
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, recovery in oil prices and a stronger than-expected pickup in activity in the euro area and other trading partners are expected to lift regional growth.
Oil prices have remained soft, despite the extension of the production cuts led by Organisation of the Petroleum Exporting Countries (Opec), which have dampened oil sector growth and contributed to large fiscal and external deficits.
Non-oil growth in oil exporting countries is expected to recover to about 2.6 per cent in 2017 and 2.4 per cent in 2018, according to the IMF’s latest Regional Economic Outlook (REO). Both oil and non-oil growth for GCC countries have been revised down since the May 2017 REO.
“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.
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 importers
Oil Importing countries of the MENAP region are expected to report resilient and inclusive growth in economic activity in the year ahead, according to the 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 REO — is expected to be broad based, 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 2019–22. “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 labour market over the period,” said Azour.
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 mobilisation 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 lacklustre 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 said 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.
Arab countries need to focus on youth unemployment
SME financing is key to new jobs
Dubai: To address the high youth unemployment across the Arab region, countries in both oil exporting and oil importing countries in the region should implement labour market and education reforms, improving productivity, and enhancing access to finance for small and medium enterprises, Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said at the Arab Strategy Forum 2017.
“The SME sector accounts for more than 60 per cent of new jobs in the region. Unfortunately, this sector is facing acute shortage of funding from both conventional institutional channels. While urgent financial sector reforms are needed to make bank financing available to the sector, governments should facilitate fund flows into the sector from other funding channels such as private equity,” said Azour.
According to the IMF, for the region as a whole, 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.
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, recovery in oil prices and a stronger than-expected pickup in activity in the euro area and other trading partners are expected to lift regional growth.
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