GCC growth set to shrink by 2.7pc in 2020 says IMF

MANAMA: Growth in GCC countries is projected to contract by 2.7 per cent in 2020, according to the latest assessment by the International Monetary Fund (IMF).

In its 2020 Regional Economic Outlook for the Middle East, North Africa, and Central Asia, the IMF said oil-exporting countries like Bahrain are hit by a double whammy of lower global demand and lower oil prices, with oil exports expected to decline by more than $250 billion across the region.

Non-oil activity is expected to be a major drag on the near-term outlook, contracting by 4.3pc this year, a significant downward revision from the 2.3pc growth projected in the organisation’s October 2019 Regional Economic Outlook for the Middle East and Central Asia.

US crude oil prices plummeted below $0 a barrel for the first time in history on Monday, due a massive destruction in demand prompted by the coronavirus pandemic and lockdowns which are paralysing global economic activity, as well as a supply glut.

The IMF report released last week before the oil price collapse says global prices have fallen by more than 60 per cent since the Covid-19 outbreak, to the lowest point in more than 20 years after adjustments for inflation, as travel restrictions introduced by governments around the world have reduced demand for oil.

However, the subsequent production cut agreement by Opec+ at the start of this month, complemented by further production cuts by oil exporting G20 economies, could provide some support to oil prices, particularly if global demand increases.

Measured in real terms (adjusted for inflation), oil prices have not been this low since 2001.

Oil prices at these levels could result in more than $230bn in lost annual revenue across Menap (Mena plus Afghanistan and Pakistan) oil exporters, compared with October projections, placing significant strains on fiscal and external balances.

Menap oil exporters comprise Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the UAE and Yemen.

For some countries (Algeria, Bahrain, Iraq and Oman), this could lead to a rapid depletion of buffers, particularly as spending pressures increase to combat the Covid-19 outbreak.

The lower oil and commodity receipts will erode policy space to address the crisis in some countries, put pressures on exchange rates and government budgets, and weaken external positions.

The IMF feels the decreases in oil prices are so large that fiscal and export revenues are expected to decline across all oil-exporting countries in the region, including those that might manage to gain market share from higher-cost producers.

As a result, fiscal balances are expected to turn negative, exceeding 10pc of GDP in most countries.

The large deterioration in their fiscal deficit – due to the impact of lower growth on tax revenues and scaled-up spending – is expected to raise public debt to almost 95pc of GDP in the Menap region.

External borrowing costs have risen, on average, by 279 basis points in the GCC.

These conditions pose major challenges for those with existing funding pressures (Bahrain, Iraq, Oman) and could become a wider concern given the region’s estimated $10bn of maturing external sovereign debt this year.

The fiscal deficit for the region is expected to deteriorate from 2.8pc of GDP in 2019 to 10pc of GDP in 2020, with about two-thirds of this decline (or 4.4pc of GDP) resulting from crisis related spending and revenue measures.

Countries with fiscal buffers (Kuwait, Saudi Arabia, UAE) are better placed to accommodate rising deficits than those with limited space (Algeria, Bahrain, Iran, Iraq, and Oman).

Lower projected hydrocarbon revenue will also weigh on the region’s current account balance, which is expected to tip into a deficit of 5.8pc of GDP in 2020 from a surplus of 2.7pc of GDP in 2019.

In the GCC, the current account will shift from a surplus of 5.6pc of GDP in 2019 to a deficit of 3.1pc of GDP this year.

Looking ahead, growth in the Menap oil exporters is expected to rebound in 2021, reaching 4.7pc.

This reflects current projections of fading effects from the Covid-19 outbreak, gradual improvement in oil prices, and the benefits from sustained global policy easing.

Source: http://www.gdnonline.com/Details/810700