IMF sees improved prospects for ME Gulf oil exporters

Major oil exporters in the Middle East and north Africa (Mena) stand to receive a windfall from higher oil and gas prices, but countries in the region still need to accelerate structural reforms, according to the IMF.

In its latest economic outlook for the Mena region, the IMF forecasts oil prices will average $106.83/bl in 2022 and $92.63/bl in 2023. The projections — an average of the Brent, Dubai and WTI benchmarks — are well above fiscal breakeven prices for all regional oil exporters, according to the IMF. The fiscal breakeven is the oil price required for a balanced state budget.

Downside risks dominate the IMF's outlook, including the prospect of a prolonged war in Ukraine, further sanctions on Russia, tighter-than-expected global financial conditions, a sharper slowdown in China and new Covid-19 outbreaks. The pace of structural reform in the Mena region needs to speed up to mitigate the impact of tighter macroeconomic policies on growth, address long-term scarring from Covid-19 and the war in Ukraine, and improve resilience in the post-pandemic world, the IMF said.

"To bolster a sustainable, inclusive and greener recovery, countries should prioritise measures that tackle some of their long-standing structural issues, such as enhancing the efficiency of government expenditure and revenue collection capacity, promoting private-sector activity, reducing informality and youth unemployment, and addressing climate change," the IMF said.

But despite these risks, the IMF suggests that major oil exporting countries in the Mena region face brighter prospects "as the windfall from higher oil and gas prices and successful vaccination campaigns are expected to improve fiscal and external balances and support recovery".

Oil revenues in the region are projected to increase by an average of 5.3 percentage points of gross domestic product (GDP) this year compared to 2021, reaching a total of $818bn. This is an upwards revision of $320bn compared with the IMF's previous outlook in October. The oil windfall will help rebuild fiscal buffers and cushion the effect of the war in Ukraine, but Mena oil exporters will be exposed to higher volatility, the IMF said.

Economic growth in the Gulf Co-operation Council (GCC) countries is projected to accelerate to 6.4pc in 2022, from 2.7pc in 2021. This represents a 2.2 percentage point hike compared with the IMF's previous forecast for 2022, mainly due to an upwards revision to the GDP growth estimate for Saudi Arabia.

Meanwhile, GDP growth in Iran is projected to slow down to 3pc in 2022, from 4pc in 2021, although this still represents a 1 percentage point increase from the IMF's previous forecast, reflecting higher oil production and exports to China. The IMF's forecast for Iran assumes that US sanctions on Tehran remain in place this year.

Uneven recovery

The recovery in the Mena region is expected to be uneven, mirroring the diversity of its economies. The IMF sees the region as a whole growing at 5pc in 2022, versus 5.8pc in 2021. The 2022 forecast has been raised by 0.9 percentage points compared with the October projection, reflecting an improved outlook for oil exporters and better-than-expected growth in the first half of fiscal year 2022 for Egypt, the IMF said.

Inflation is expected to peak at 3.1pc in Mideast Gulf countries in 2022, an increase from 2.2pc inflation in 2021. But prospects will vary across oil exporters in the Middle East. The inflation forecast for Iran and Iraq this year has been revised significantly higher, by 4.8 and 2.4 percentage points to 32.3pc and 6.9pc, respectively. In Iran's case, the increase stems from currency depreciation and loose monetary and fiscal policies, and for Iraq it is driven by higher imported inflation.

By Bachar Halabi