Dubai: Current account surpluses in the Middle East and North Africa will almost triple this year to $140 billion from last year’s $53 billion as capital flows resume and crude oil prices rise, the International Monetary Fund said.
Stresses in the banking and financial sectors along with slow credit activity are, however, weighing on the rebound, the IMF said in its Regional Economic Outlook (REO), presented at the Dubai International Financial Centre.
“The outlook for the region has improved considerably from 2009. Growth is gathering momentum in 2010, helped by the pickup in capital inflows and resurgence in domestic consumption,” said IMF Middle East and Central Asia Director Masood Ahmad. “However, this positive perspective is clouded by some stress in the banking system and lethargic credit activity across the region,” he said.
The region’s oil exporters — Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, UAE and Yemen — saw their combined current account surplus fall to $53 billion in 2009, after having reached $362 billion in 2008. Oil GDP for these countries contracted by 4.7 per cent, triggered by plummeting oil prices.
However, massive stimulus measures helped mitigate the impact of the crisis, and non-oil economic activity still managed to expand by 3.6 per cent in 2009, the IMF said.
The report sees a strong recovery in the coming year, aided by an increase in capital inflows and crude oil prices. Higher oil prices and output are projected to boost the current account surplus to $140 billion and oil-GDP growth to 4.3 per cent. Non-oil sector activity, supported by sustained fiscal stimulus in some countries, is also forecast to grow by 4.1 per cent.
“The region’s oil exporters still face challenges in their banking systems, however, where credit to the private sector remains sluggish and losses on nonperforming loans have yet to be fully recognized”, Ahmad said. Following an extended period of high growth through mid-2008, credit in these countries slowed by an average of almost 30 percentage points by end-2009.
“Governments will have to balance the goal of reactivating credit with the need to strengthen financial regulation and enhance supervision, particularly in countries where there is evidence that excessive risk-taking occurred,” Ahmad said.
“Over the medium term, policymakers also face a delicate balancing act in unwinding official support to the financial sector — and in phasing out the fiscal stimulus, which is projected to last through 2010 but should be discontinued once a solid recovery is achieved.
“It is important that the stimulus is kept for as long as needed to help domestic demand. But beyond 2010, the measures should be gradually unwound to avoid additional fiscal pressures, in particular for countries that already have high levels of debt,” Ahmad said.