São Paulo – The International Monetary Fund (IMF) revised down the growth estimation of the Middle East and North Africa, according to an update of the report Regional Economic Outlook released this Wednesday (21). The new projection for the growth of the region’s Gross Domestic Product in 2015 stands at 3.2%. In the previous report, from October 2014, the estimation was for an increase of 3.8%.
The reduced figure, however, is higher than the growth of 2.6% recorded last year and the one from 2013, which stood at 2.1%. The numbers include 20 Arab countries and Iran.
The IMF divides the region’s nations in two blocks: oil importers and exporters. As such, the main factor behind the lower projection was the oil price drop of the last months, which affects directly revenues of exporters. The organization points out that oil prices have dropped 55% since September of last year.
From this point of view, the most recent projection indicates a 3% growth for the oil exporting countries in 2015. In the previous study, the projection was for a 3.9% growth. The projections still stand above the recorded performances in 2014 and 2013, of 2.7% and 1.9%, respectively.
In the case of oil importing countries, the growth estimation for 2015 even went up a little, from 3.7% in October to 3.8% currently. If confirmed, the performance will be higher than the ones from the three previous years.
The oil exporting nations should also face fiscal effects, since in these countries a large part of the government’s revenues comes from the foreign trade of the commodity. These are economies that rely heavily in the oil industry.
Among the region’s oil exporters, only Kuwait should be able to sustain a fiscal surplus in 2015. In the IMF’s assessment, losses with the commodity should reach US$ 300 billion in the Gulf Cooperation Council (GCC) and US$ 90 billion in the nations that aren’t part of the bloc (Algeria, Iran, Iraq, Libya and Yemen. The GCC consists of Saudi Arabia, Bahrain, Qatar, United Arab Emirates and Oman.
“Most oil exporters need oil prices to be considerably above the US$ 57 [per barrel] projected for 2015 to cover government spending”, says the IMF report. The oil barrel price is below US$ 50.
However, this doesn’t mean these countries will require drastic spending cuts. According to the IMF, most of them have significant buffers amassed over the past few years. The Fund says the amount of funds available is “substantial” in Kuwait, Qatar, Saudi Arabia, UAE, Algeria and Libya, but “limited” in Bahrain, Oman, Iran, Iraq and Yemen.
Despite these buffers, the Fund says the GCC should take the hardest hit from the loss of oil revenues, and all its countries, barring Qatar, are likely to cut down on public spending in 2015. The GDP growth forecast for the Gulf countries this year is 3.4%, against 4.5% in the report issued last October. In 2014, the GCC grew by 3.7%.
Non-GCC countries are expected to grow by 2.4% in 2015; the October forecast was 3.1%.
The IMF notes that the future is uncertain when it comes to oil prices, since no one knows how demand will behave, and a production cut is not expected. Besides, countries with serious safety issues such as Iraq, Libya and Yemen may see their output go down, among other economic issues.
In case of a prolonged slump, the Fund claims these countries will need to make adjustments, such as cutting spending on public workers’ wages and subsidies, and diversify their revenue sources by resorting to taxing income and consumption, for instance.
Importers
In the region’s oil importing countries, cheap oil has the opposite effect, since more funds are freed up to be spent elsewhere. The Arab countries that should save the most are Morocco, Lebanon, Mauritania, Djibouti, Jordan and Tunisia.
The decline in oil prices can potentially be passed on to consumers, reduce production costs and enable fuel subsidies to be scaled down. According to the IMF, Egypt, in particular, could benefit from the latter.
In Lebanon and Egypt, for example, lower oil costs should help maintain fiscal balance, but the IMF has made darker forecasts for other countries than it had in October, since domestic markets are growing less than expected, and public spending is at high levels. Cases in point are Djibouti and Tunisia.
While cheaper oil is a positive factor for these countries, there are negative variables to consider. The Eurozone is the leading export destination for many. Furthermore, these economies get an influx of remittances from expatriates living in Europe and the Middle East, of tourists from both regions, and of investments from the Gulf. Since Europe and the GCC will likely grow less than had been previously assumed, this could potentially be a downside. The effects, however, should vary from country to country. The IMF has revised down its growth expectations for Morocco, but raised its forecast for Egypt, for instance.
The Fund advises these countries to control spending in the face of uncertainty regarding oil prices and the availability of external financing. According to the IMF, the current scenario allows for funds to be saved for times of crisis, for cash to be funnelled into potentially growth-inducing areas, for government debt to be reduced, and for further subsidy cuts to be made, enabling the money to be spent instead on social programs, tax reform and other actions.
*Translated by Sérgio Kakitani & Gabriel Pomerancblum
