Oil-producing Middle East nations are coping with low global oil prices, although more government reforms are needed, the IMF’s head for the Mideast said as the organization issued a new report yesterday showing weak economic growth in the region.
Masood Ahmed also told reporters that Iran’s economy beat expectations by growing by 4.5 percent this year and could keep up that pace if it can modernize its industries and allow more foreign investment after its nuclear deal with world powers.
Much of the IMF’s new report on the Middle East’s economic outlook will not come as a surprise to those living in the region since oil prices have halved following highs of more than US$100 per barrel in mid-2014.
All Gulf Arab countries have cut back on generous subsidies that kept gasoline prices low, while some have reorganized government agencies and halted construction projects.
With oil prices expected to remain low, the IMF report estimates that growth across Gulf states will be about 1.7 percent this year, while regionally “little improvement” is expected for next year.
It says that only Iraq, Kuwait and the United Arab Emirates will be able to see budget surpluses by 2021, while the war against the Islamic State group, Yemen’s civil war and the Syrian conflict continue to weaken confidence in the region.
“Some countries — Saudi Arabia, Bahrain and Oman — start from a position where they have to make more of an adjustment to be able to balance their budget in five years,” Ahmed told reporters in an interview on Tuesday. “They all do have policies that they’re articulating that will help them get there, but they will entail difficult choices.”
Among those tough choices will be cutting public-sector salaries and jobs in Saudi Arabia and Oman, he said.
Meanwhile, Iran’s economy has charged ahead through boosting oil production close to levels seen before Western nations imposed economic sanctions over its contested nuclear program. Iran will have to modernize both its banking system and its manufacturing industry, as well as allow more foreign direct investment in the country, to continue that growth.
“The big challenge for Iran is can you sustain that 4-to-5 percent growth over the medium term, or is it just a one-time increase you get?” Ahmed asked. “They can, but they have to move on addressing some of the other constraints in their economy.”
Easing further sanctions on Iran would encourage that growth, although Ahmed acknowledged that it would be a “political process, one we don’t have a view on.”
That also would have to come as some Iranian security forces detain those with Western ties, while its Revolutionary Guard, a powerful paramilitary organization, still holds a large stake in the economy.
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