Regional Director of the International Monetary Fund in the Middle East and Central Asia Jihad Azour called the Gulf States for taking serious measures to contain the current deficit which came as a result of the decline of oil prices since 2014. He stressed that the Gulf States are on the right track by implementing financial reforms.
The International Monetary Fund (IMF) believes that Saudi Arabia can afford to relax its tough fiscal stance “from time to time,” like in the decision last week to reinstate benefits to some government workers. Jihad Azour, the new IMF director for the Middle East and Central Asia, told reporters in Dubai at the unveiling of the fund’s regional economic outlook for the Middle East that he believed the Saudi commitment to fiscal balance was still intact after the benefits move.
“From time to time, you can allow some fine-tuning in a program this big. The government has confirmed that a balanced budget is still the target for 2020. I think you can allow some slippage in a program of such magnitude,” Azour said.
Saudi Arabia launched a strategy to transform the economy of the Kingdom in its Vision 2030 plan, which aims to reduce its dependency on oil revenue and increase private-sector growth. However, Azour warned that there was a danger of “reform fatigue” in the strategy. “One of the risks is that fatigue sets in. It is an ambitious program of reform and diversification, but the government needs to prioritize its targets and implement them,” he added.
The IMF also believes that economic growth will be weaker this year. It recently downgraded growth to 0.4 percent this year and 1.3 percent in 2018. A team of IMF analysts is currently in the Kingdom working on a new assessment, Azour said.
But the outlook for Saudi Arabia, and the wider Middle East and North Africa (MENA) region, is improving. “Things are looking up and external conditions have improved. The reforms that have been undertaken in the region are beginning to bear some fruit,” Azour said.
The improved economic outlook was because of higher growth in the rest of the world and rising commodity prices, though the IMF does not believe there is much upside in the crude oil price. It sees $55 per barrel as the average price this year and the next. The benchmark crude Brent traded at around $52 a barrel on Monday, while the Kingdom’s 2017 budget is calculated on a $50 projection.
For the region as a whole, the IMF said: “The global outlook is consistent with somewhat higher commodity prices and stronger global trade, which will support economic activity in the Middle East and Pakistan; stronger growth in China will also support anticipated investment in some countries.”
The fund said that growth in the non-oil economies of the region would continue, but, because of the low oil prices, “further sustained fiscal adjustment remains critical,” which would affect the overall economic growth. This is forecast to fall to 2.6 percent across the region and Pakistan this year, rising to 3.4 percent in 2018. Oil exporters are expected to show 1.9 percent growth this year and 2.9 percent next year.
On the forthcoming Saudi privatization plan, which could be worth up to $300 billion at the top end of estimates, Azour said: “Whatever can be done to improve private sector participation is good, so I think all these initiatives are welcome. They are ambitious plans for reform and diversification.”
He added that high levels of debt were an issue facing the region, especially for the oil exporters. In the UAE, the region’s second-biggest economy, the IMF estimates gross public debt (excluding government-related entities) at 19.3 percent of gross domestic product (GDP).
An IMF team is working on a new assessment of debt in Dubai, which is believed to be significantly higher than the UAE average and will report later this month. But Dubai’s growth is higher than most other parts of the region, at about 4 percent projected for 2017.