The oil exporting economies of the Arabian Gulf expect to see a pick-up in GDP growth in 2018 and 2019, after bottoming out last year, as the price of oil rebounds and non-oil business activity recovers, according to the International Monetary Fund.
However, the fund warned uncertainty about the direction of oil prices, growing global trade tensions, geopolitical risks and rising interest rates made the need for economic reforms more urgent.
“If these risks materialise, they could trigger potentially significant fiscal and financing pressures for many countries in the region, affecting prospects for continued fiscal consolidation and economic recovery,” the IMF said in its latest regional economic outlook.
“Weak growth prospects over the medium term underscore the importance of accelerating planned structural reforms.”
The gross domestic product of oil exporters in the Middle East and North Africa grew on aggregate 1.7 per cent in 2017 compared to 5.4 per cent in 2016, and is expected to rise 2.8 per cent in 2018 and 3.3 per cent in 2019. Economic growth in the GCC contracted 0.2 per cent overall last year and Saudi Arabia, the Arab world’s largest economy, went into recession for the first time since 2009. GCC economic growth is expected to rise 1.9 per cent in 2018 and 2.6 per cent in 2019, the IMF said.
The rise in the GCC is due not only to a resurgence of oil prices but also to the improvement of government finances through the reduction of subsidies and, in the case of Saudi Arabia and the UAE, the implementation of VAT in January. Governments also tapped global bond markets to raise funds in the wake of the 2014 oil crash, which helped keep infrastructure projects ticking despite some delays. Saudi Arabia also embarked on a wide-ranging reform programme that included a campaign against corruption, allowing women to drive and a plan to sell stakes in state assets, including a 5 per cent stake in Saudi Aramco, the world’s largest oil producer.
Meanwhile, economic growth in Mena, Afghanistan and Pakistan as whole is expected to increase 3.4 per cent in 2018 and 3.7 per cent in 2019.
The IMF said that while Mena, Afghanistan and Pakistan would benefit from stronger global growth, especially in the eurozone, higher global interest rates could increase fiscal vulnerabilities.
For oil exporters, supply-side uncertainties make the outlook for oil prices uncertain. The price of crude rose sharply in the second half of 2017, bolstered by improved global growth and an agreement by Opec and others to cut production until the end of 2018. The price of oil has, however, lost some ground in recent months with rapidly rising US shale production.
The IMF said that as well as the global risks of rising import tariffs and a shift towards inward-looking policies, the Middle East region may also face an increase in geopolitical tensions and conflicts, dampening reform momentum.
“At the regional level, conflicts and geopolitical risks persist, and commitment to the implementation of key fiscal measures and structural reforms could weaken, considering the observed increase in oil prices,” the IMF said.
“The continued commitment to fiscal consolidation, although at a slower pace, could, in contrast boost investor confidence and result in stronger growth.”