October 28, 2015 -The fall in prices has led to large export revenue losses, amounting to a staggering $360 billion this year alone in Middle East and Central Asia.
The International Monetary Fund (IMF) said that while many countries are drawing on their fiscal cushions and are starting to consolidate their budget positions, fiscal deficits are still expected to average nearly 13 per cent of Gross Domestic Product (GDP) in oil-exporting countries this year.
According to IMF in Regional Economic Outlook for the Middle East and Central Asia, released last week, over the medium term, putting fiscal positions on a stronger footing will require efforts to streamline spending, reform energy pricing, and broaden non-oil revenue sources.
“The key to resolving the challenge of absorbing millions of new job-market entrants expected over the next few years lies in accelerating economic diversification by creating incentives for private firms to expand activities that do not depend on government spending or oil,” IMF Middle East and Central Asia Department Director, Masood Ahmed said at the report’s unveiling in Dubai.
He said that achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for the more than 10 million people anticipated to be looking for work by 2020 in the region’s oil-exporting countries.
The region’s oil-importing countries should experience a pickup in growth averaging about 4 percent in 2015-16, the report said. “Lower oil prices have been a boon, and progress in implementing reforms, advancing political transitions, and improving euro area growth have also played important roles. But the picture is not universally rosy, as some oil-importing countries (such as Lebanon, Jordan, and Tunisia) are being profoundly impacted by intensifying regional conflicts, which are more than offsetting the benefits from lower oil prices”, it added.
Moreover, Ahmed told reporters, there are risks to the outlook for this group. Slower growth in the Gulf Cooperation Council countries could lead to lower remittances; borrowing costs, and risk aversion are likely to increase as liquidity tightens in global and regional markets, while the likely slowdown in emerging markets could impact exports.
The report noted that although rising, current growth rates are not enough to make a serious dent in unemployment.
There are a number of steps oil-importing countries could take to seize this moment of lower oil prices and strengthen their economies. “Lifting economic prospects in a sustainable and inclusive manner will require raising public investment and implementing structural reforms to fuel private sector-led growth, especially in the areas of governance, the business climate, labor markets, and access to finance,” Ahmed said.