Dubai: The Arab region has a diverse economic outlook based on the economic and political realities different countries face, Natalia Tamirisa, assistant to the director of the IMF Research Department, told the Arab Strategy Forum.
Based on this, countries from the region are categorised into three groups: countries in conflict, oil exporters and oil importers.
The slump in oil prices and ongoing conflicts continue to weigh on the region’s economic outlook.
Uncertainties arising from conflicts in Iraq, Libya, Syria, and Yemen are weakening confidence and lower oil prices are taking a toll on exports and the economic activity of oil exporters.
The outlook for GCC oil exporters is projected to slow this year despite a continued expansion in hydrocarbon output and the recent increase in oil prices, according to the International Monetary Fund.
The fund has projected a gross domestic product (GDP) growth of 2.3 per cent for the GCC as a whole for 2016, down from 4 per cent last year and forecast a slight recovery next year to 2.5 per cent.
Fiscal tightening and declining liquidity in the financial sector are projected to reduce non-oil growth in the GCC to 1.25 per cent this year, down from 3.75 per cent per cent last year.
GCC non-oil growth is projected to pick up to 3 per cent next year as the pace of fiscal consolidation eases.
Over the medium term, the IMF expects less fiscal drag and a partial recovery in oil prices that are expected to raise GCC non-oil growth to 3.5 per cent, well below the 7 per cent average seen during the 2000–2014 period.
The recent recovery in oil prices has come as a relief to oil exporters. But the outlook for the region has not changed fundamentally, Tamirisa said.
The significant deficit-reduction efforts which began last year are continuing, with the aggregate 2016 non-oil fiscal deficit expected to improve by more than 5 per cent of non-oil GDP.
Despite recent consolidation measures, including reforms to domestic energy prices, deficits are projected to remain large — all countries are anticipated to record fiscal deficits this year.
A faster US monetary tightening could increase global financial volatility, thereby reducing the availability and increasing the cost of international financing for regional entities.
“Countries in the region need to accelerate structural reforms to diversify their economies away from hydrocarbons, boost the role of the private sector, and create jobs for their rapidly growing labour forces,” she said.
Oil importers are benefiting from lower oil prices, although declining remittances from oil exporters are partly offsetting these benefits.
Recent reforms and lower oil prices have helped improve macroeconomic stability in the oil importing countries in the region.
Yet growth remains weak and fragile, projected to be 3.5 per cent in 2017. Continued progress in reforms, lower fiscal drag and stronger external demand, especially from the Eurozone, are expected to support the recovery.
However, amid lingering structural impediments, medium-term growth is likely to remain too low to tackle high unemployment and improve inclusiveness, according to the IMF.
