Ali Khalil, AFP
Last updated: 8 October, 2013

IMF warns weaker oil prices may leave MENA exporters in red

The International Monetary Fund warned Tuesday that a sustained drop in oil prices could leave many Middle Eastern and North African exporters in the red because of surging spending.

The warning came in the IMF’s new World Economic Outlook report, which expected growth in MENA oil-exporting economies to drop to 1.9 percent this year from 5.4 percent in 2012 before gathering pace next year to 3.8 percent.

“A sustained decline in oil prices would leave many oil exporters in the (MENA) region with fiscal deficits,” the report said.

The IMF said the oil price needed for budgetary break-even is now higher than the expected price for oil in 2014.

“Over the past several years, increased spending has raised fiscal break-even oil prices… faster than actual oil prices have risen,” it said.

“As a result, a number of economies (including) Algeria, Bahrain, Iran, Iraq, Libya, Yemen, have fiscal break-even prices above the projected oil price for 2014,” it added.

Some Gulf countries have substantial fiscal buffers, but other regional exporters should have adopt a fiscal policy focused on “building buffers against oil prices shocks by finding non-oil sources of revenue and containing hard-to-reverse current expenditures.”

The report also suggested that several factors could put pressure on oil exporters in the region.

“Weaker global demand, particularly a further slowdown in emerging market economies, or a faster-than-expected increase in non-OPEC supply, could put downward pressure on oil prices and growth in oil exporters,” said the report.

In terms of country-by-country figures, the IMF expected Iran’s economy to continue to contract, at 1.5 percent in 2013 after a drop of 1.9 percent last year. But it forecast 1.3 percent growth in 2014.

Saudi Arabia, the world’s largest crude exporter, will see 3.6 percent growth this year, down from 5.5 percent in 2012, before picking up by 4.4 percent in 2014.

Meanwhile, the IMF expected the economies of oil importers to expand by 2.8 percent this year from 2.0 percent last year. Growth should widen pace in 2014 to register 3.1 percent.

Social unrest has hit the economies of many of these countries.

The economy of Egypt will grow 1.8 percent this year after 2.2 percent last year, and is expected to expand by 2.8 percent in 2014.

Egypt still suffers from the impact of political and security uncertainties, but it has been buoyed by multi-billion-dollar aid packages from Gulf states following the army ouster of Islamist president Mohamed Morsi in July.

The economy of Tunisia, cradle of the uprisings that swept the region in 2011, appears to be gathering pace, though at much slower rate than before the December 2010 uprising.

After growing 3.6 percent last year, its economy is seeing growing by 3.0 percent this year, and is expected to expand by 3.7 percent in 2014.

Lebanon is still badly affected by the spillover from the conflict in neighbouring Syria, and growth will remain at 1.5 percent in 2013 and 2014, the same as in 2012.

Earlier this month, the IMF urged oil-rich Kuwait to contain public spending, which has trebled in seven years, to avoid risks from a drop in crude prices.

Crude futures have been falling on worries in connection with the government shutdown in the United States, which remains the world’s biggest oil consuming nation.

On Tuesday, New York’s main contract, West Texas Intermediate for delivery in November, was down eight cents at $102.95. Brent North Sea crude for November eased 27 cents to $109.41.