The International Monetary Fund yesterday warned Arab states against complacency over a looming debt crisis, urging continued economic reforms despite a rise in oil prices. Crude prices have rebounded in the region thanks to a deal by producers to trim production, but the IMF said such a change in fortunes should not get in the way of overhauling state spending.
“Required reforms include further steps toward full elimination of energy subsidies, and changes to pension and social security systems — including revisions to retirement age and benefits,” the IMF said in its Regional Economic Outlook for May. Jihad Azour, director of the IMF’s Middle East and Central Asia department, told AFP higher oil prices should spur change.
“We should not be complacent…oil prices are going up. That definitely does not mean that we should not introduce the reforms. On the contrary, the current environment offers the opportunity to accelerate some of these reforms,” Azour said. Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016.
Overall growth in the Middle East and North Africa (Mena) region, which includes all Arab countries and Iran, was forecast by the IMF to reach 3.2% this year compared to just 2.2% in 2017. The partial recovery in oil prices will be a boost for the Gulf Cooperation Council states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE — which supply almost a fifth of global crude oil. After the GCC saw their economic growth shrink by 0.2% last year, impacted by a 0.7% contraction by the Saudi economy, their economy is expected to return to growth in 2018. The Council’s economy is forecast to grow by 2.2% this year and 2.6% in 2019, the IMF said.Following the oil price slump in mid-2014, GCC members undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.
Azour said that Saudi Arabia’s economic consolidation measures to cut a persistent budget deficit and diversify the economy away from oil remains the correct policy. “The current strategy that is based on reaching a balanced budget by 2023 is the right one,” he said.Despite the improved economic forecast, the IMF estimated cumulative overall fiscal deficits in the region to be $294bn in 2018-22.
Around $71bn of government debt is expected to mature during the same period. “The rapid buildup of debt in many of them (Mena countries) is a cause for concern. Debt has increased by an average of 10 percentage points of GDP each year since 2013, with countries financing large fiscal deficits,” the IMF report said. An impending increase in interest rates, making borrowing more expensive, will complicate the problem, it added.
According to the IMF, the economy of oil-importers should grow by 6.2% annually to maintain unemployment at the current rate of 10%. Mena countries need to create 25mn new jobs over the next five years, Azour said, while warning of the negative consequences of unemployment coupled with rising debt levels. “The average debt in the region for oil-importing countries exceeds 80%,” of gross domestic product (GDP), he said, stressing such a figure is “beyond what is acceptable.”