MENA’s growth affected by refugees crisis and oil prices drop : IMF
Qatar’s Energy Minister Mohammad Al-Sada said last week that the oil price has bottomed out and there are signs that a recovery would take place in 2016.
The Minister who is also the acting president of the Organisation of Petroleum Exporting Countries, in an emailed statement, said growth in supply from non-OPEC producers had decreased in 2015 resulting in zero to negative growth in 2016 and that in the meantime, hard times being upon us; a UAE minister calls for cuts to energy spending by all peoples of his country.
The UAE’s Energy Minister Suhail M. Al Mazroui described the “squandering” of resources as the “enemy of development” and called on residents to cut their electricity and water usage. People living in the United Arab Emirates need to reduce their energy consumption by 10 % to save the country billions.
The ministry says it currently spends Dhs 35 billion on subsidies for fuel and water, though a report, published by the International Monetary Fund earlier this year, estimated that the actual pre-tax bill was around Dhs 46.4 billion.
Meanwhile, demand for OPEC oil is expected to increase to 30.5 million barrels per day next year from 29.3 million barrel per day in 2015 because of stronger appetite in both developed and emerging countries markets, he said adding the resulting trend of declining investment in the oil industry could cause production shortfalls down the line, Qatari Al-Sada added, noting that OPEC and non-OPEC countries planned to meet at expert level in Vienna later this month to discuss and evaluate the oil market situation.
In this conjecture, a combination of low oil prices and intensifying conflict in the region will impact the growth rate of oil exporting countries in the Middle East, the International Monetary Fund (IMF) said.
Speaking ahead of the launch of the IMF’s regional economic outlook, the Fund’s director of the Middle East and Central Asia Masood Ahmed declared: “If you look at the growth rate, it is a little short of 2 % for the oil exporters. That is almost one per cent below that of 2014.
“Of course, there is a lot of variation even among the oil exporters. The GCC countries are doing better than the others. Their growth rate is about 3.25 % this year and will slow down a little bit more next year to just below 3 % as they continue with their process of fiscal adjustment. And that : “Outside of the GCC, this year actually there is virtually no growth in the oil exporters. So, countries like Yemen, Libya and Iraq are impacted by conflict.”
Oil prices having fallen as we all know by around 50 % since June 2014,and having recovered somewhat intermittently, Masood estimated that export earnings of oil exporting countries in the Middle East and North Africa region fell by $360bn i2015 compared to 2014. In May this year, the IMF had estimated export earnings of Middle East countries to fall around $380 billion by 2015. The Fund, however, did not to date say whether it has revised this forecast for the region.
“One consequence of this, is that budget deficits in these countries have increased dramatically because they have continued to spend from savings but that still means that their current expenditure is now higher than their income,” he said adding:
“Budget deficits of the oil exporters are, on average, now just about 13 % of GDP this year.” Masood added and that he expected oil prices will remain low for the next few years, saying that oil exporting countries might find it hard to achieve fiscal sustainability.
“They will have to undertake gradual but sizable and sustained consolidation on the budgetary side,” he said with in addition, face up to the critical challenge of creating jobs for 10 million people set to enter the workforce by 2020 will also hinder regional countries from achieving fiscal sustainability, the IMF noted.
“They need to try and reduce their spending in a way to balance it with their income over the next five years, but at the same time they have to recognize that they have to provide jobs for a number of people and, of course, in many of these countries, nationals, in particular, have mainly been working in the public sector rather than in the private sector,” said Masood who addressing the oil importing countries added :
“Our message to the oil-importing countries is to use this favourable window and the tailwind that comes from lower oil prices to prepare for a period when there could be more risks ahead and to do this by reallocating their spending from consumption to investment, because investment will generate growth, and by improving the climate for private investment in the country,” said Masood.
As a matter of fact, oil importing countries on the other hand, may have benefitted from those low oil prices, IMF informed that a slowdown in the GCC countries could lead to a reduction in remittances, thus affecting all the recipient countries directly but also through increased international interest rates that could in turn lead to higher borrowing costs for these economies. A slowdown in emerging markets could also hit the exports from these countries.