Higher oil prices providing ‘temporary’ support to MidEast oil exporters: IMF

The growth outlook for the oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) remains subject to significant uncertainty about the future path of oil prices, the International Monetary Fund (IMF) said on Tuesday.

Releasing its 2018-19 Middle East and Central Asia Economic Outlook Report, the IMF noted that oil exporters in the MENAP region will experience visible improvements in external and fiscal balances in 2018–19 supported by higher oil prices.

However, risks remain skewed to the downside over the medium term, it added.

These risks include a faster-than-anticipated tightening of global financial conditions, escalating trade tensions that could affect global growth and put downward pressure on oil prices, geopolitical strains, and spillovers from regional conflicts, the IMF said.

Nevertheless, despite a weaker outlook for Iran given sanctions, oil-exporting MENA countries are projected to grow at 1.4 percent in 2018 and 2 percent in 2019, the report noted.

The report said capital inflows following Saudi Arabia’s inclusion in the MSCI Emerging Markets Index (March 2018) and the FTSE Russell Equity Indices (June 2018) are supporting the improvement of the Kingdom’s financial account.

The IMF however added the current environment of temporarily high oil prices also provides an opportunity for countries to rebuild buffers.

“The potential threats to the global outlook, including rising trade tensions, could put additional downward pressures on oil prices. Therefore, countries should further strengthen their fiscal frameworks to create space in the event policy support is needed” it noted, while lowering its projections for the region’s fiscal deficit.

The IMF also noted that considering the need to reduce commodity dependence and promote economic diversification, two areas deserve special attention: labor market reforms and improving the business environment.

Delivering a presentation on the occasion, Jihad Azour, IMF's Middle East and Central Asia director said, “Economic growth will continue at a modest pace but not with the same steam like last year in the region.”

All calculations show oil prices will come down to $60 to $65 a barrel, but for the Middle East region, "there is no room for complacency," he added.

“We need to reinvent our diversification model in the region in order to see real improvements,” he maintained.

The regional director also emphasized on reforming the regional labor market as part of the bigger strategy to diversify the regional economy.

“There’s a need to reform the regional labor market in the GCC, to make it more flexible and to attract and retain overseas talent. There’s no one-size-fits-all strategy to localization of the labor force,” he added.

Write to Sunil Kumar Singh at sunil.kumar@argaamplus.com