Dubai: UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi said oil-exporting nations in the region must adjust their policies in response to lower global demand and an anticipated decline in commodity prices.
Al Suwaidi acknowledged the positive impact high energy prices had on the economies of oil-exporting nations but said growth performance across the region was fraught with considerable risks, including regional tensions and difficulties in the global economy.
Al Suwaidi made these remarks at the International Monetary and Financial Committee meeting of the International Monetary Fund (IMF) on Saturday.
The central bank chief, who called for measures to create a safety net by boosting non-oil gross domestic product (GDP) growth should energy markets turn bearish, warned that several oil-importing nations were already undertaking adjustment measures.
“Ample buffers will help sustain high public spending to support non-oil GDP growth should oil prices drop sharply,” Al Suwaidi said. “Meanwhile, inflation is expected to remain subdued.”
He warned Middle East nations against underestimating the challenge of removing subsidies or restraining wage growth during a period of high social unrest.
“For the countries affected by political unrest, the burden of rising debt and debt-service obligations, and limited access to financing, has increased the urgency of public finance reform,” he said.
“However, pressing social expenditure priorities have emerged and countries may need to rely on short-term reversible measures during the transition. The primary challenge remains to secure economic and social stability and restore investor confidence.”
Al Suwaidi called on the IMF to step up its level of engagement across the region to help many countries avoid the medium-term challenges of high unemployment and sluggish growth.
He welcomed recent efforts by the fund “to strengthen the analytical underpinnings of its advice, including on the social impact of subsidy and tax reforms,” across the region.
“We encourage increasing the breadth and depth of this work,” Al Suwaidi said
“Fund-supported programmes should demonstrate better understanding of the political economy constraints facing countries and pay due regard to domestic priorities. Adequate programme access levels should also support the goal of restoring growth.”
The UAE central bank chief said while global recovery was still markedly fragile, most emerging market economies continued to be a source of stability and growth, with little likelihood of overheating. He said some emerging economies were expected to return to pre-crisis growth levels with “a receding risk of a hard landing.”
Al Suwaidi, however, said the IMF should continue to encourage emerging markets to rebuild policy buffers, monitor an increasing reliance on foreign currency debt and keep inflation and credit growth under check.
Recent research has revealed that Gulf economies will outperform the rest of the region, growing at an average rate of 3 per cent this year. However, weak oil production is expected to be a drag on growth but increased government spending is expected to offset any resultant side effects.
