The economies of oil-exporting countries in the Middle East and North Africa region are expected to remain resilient, supported by the robust momentum of their non-oil economic growth, even if hydrocarbon revenue declines.
Not all oil exporters are equal and the impact of a dip in oil prices below their budget breakeven prices will depend on the strength of their fiscal buffers, Jihad Azour, director of the IMF's Middle East and Central Asia Department, said on Wednesday.
Last year was exceptional for the six-member GCC bloc, with 7.4 per cent economic expansion in the UAE, while Saudi Arabia recorded 8.7 per cent gross domestic product growth.
However, this year, the IMF expects a drop in the growth of the region’s oil GDP due to “several cuts” in oil production and “various adjustment in the Opec+ agreement”.
“It's important, especially for the GCC, to differentiate between their oil and the non-oil sectors,” Mr Azour said.
“The good news is that growth in the non-oil sector is somehow resilient — around 4 per cent to 4.5 per cent on average this year and next.
“This reflects the efforts that were made to diversify economies and also the fact that governments have increased their capacity to raise revenues outside of oil.”
The oil-rich economies of the Gulf region have benefited from the surge in oil prices, which shot up last year to as much as a notch under $140 per barrel after Russia's invasion of Ukraine.
The hydrocarbon revenue windfall in 2022 helped oil exporters to build fiscal buffers and invest in driving their non-oil economic growth.
In the Mena region, real GDP grew by 5.3 per cent in 2022, reflecting strong domestic demand and a rebound in oil production. However, growth is projected to decelerate this year to 3.1 per cent before picking up slightly to 3.4 per cent next year, according to the IMF’s latest Regional Economic Outlook for the Middle East and Central Asia region.
Mena oil-exporting economies, which grew an aggregate 5.7 per cent in 2022, are expected to expand by 3.1 per cent in 2023, as the main driver of growth shifts from oil to non-hydrocarbon activities in most countries.
The IMF prepared its regional economic update before Opec and its allies announced the surprise move to cut more than one million barrels of crude last month. The production caps have become effective this month and will remain in place until the end of this year, which the oil producers have said are aimed at oil price stability.
The Washington-based lender has assumed oil prices at about $73 a barrel this year for its economic forecast for the region.
On Wednesday, oil prices extended losses to their lowest levels since March, after the world's biggest benchmarks plummeted 5 per cent a day earlier as a regional banking crisis in the US rattled markets and raised concerns about a recession and lower crude demand.
Mr Azour said crude demand is a vital factor that will determine the heading of oil prices — but whatever the direction of oil prices, policymakers need to “keep the fiscal discipline and avoid also the pro-cyclicality” in spending.
It is important for Mena oil exporters to remain on the path of non-oil economic growth and being “less dependent” on oil revenue to accelerate the diversification of their economies, which, in turn, will allow governments to generate additional income.
“It’s very important also to differentiate between countries who have high level of [fiscal] reserves and those who have less,” Mr Azour said.
Countries with higher levels of reserves still have “good access to the international capital markets and will have the capacity to finance any budget deficit if they occur”.
“I would say it's very important to maintain the drive of consolidation” to reduce the risk of incurring fiscal deficits, he said.