IMF Says Gulf States Set to Swing Into Deficit as Oil Falls

The oil-rich nations of the Persian Gulf are set to post budget deficits this year after a plunge in crude prices, the International Monetary Fund said.

The six nations of the Gulf Cooperation Council will have a collective fiscal gap of 6.3 percent of gross domestic product, a swing of about 11 percentage points from last year’s surplus, the IMF said in a report published in Washington on Wednesday. While many nations have enough savings to avoid steep cuts and “limit the drag on growth,” they will need to adjust spending plans in the longer term, it said.

The IMF cut its 2015 growth forecast for the Middle East’s oil exporters to 3 percent from the 3.9 percent it projected in October. It kept the prediction for the region’s oil importers at 3.9 percent, saying that worse-than-expected demand in export markets in the Gulf and Europe will offset any benefits from cheaper energy.

The GCC nations, led by Saudi Arabia, are largely dependent on energy exports for government revenue. They have used high prices over the past decade to finance hundreds of billions of dollars in spending to create jobs and ward off the political unrest that has swept through other parts of the Arab world. Brent crude has slumped more than 50 percent since June and is trading at less than $50 a barrel.

‘Large Buffers’

Gulf nations have enough reserves to avoid sharp cuts in spending, said Masood Ahmed, the IMF’s director for Middle East and Central Asia.

“These countries have large buffers in the form of foreign assets accumulated during a time of rising oil prices,” Ahmed said in an interview in Washington on Wednesday. “This is the time to use the buffers and not act in a knee-jerk way to disrupt economic activity.”

“If the oil price remains low for a period of time, it does mean spending plans will need to be revisited in many of the oil-exporting countries,” he said.

The IMF also cut its growth forecast for oil exporters in the Caucasus and Central Asia by 0.8 percentage point to 4.9 percent.

Lost Exports

In the GCC countries, “oil exports losses in 2015 are expected to reach about $300 billion,” and the overall current-account surplus will shrink to 1.6 percent of GDP, the fund said.

Most oil exporters need prices to be “considerably above” the market expectation of an average 2015 price of $57 a barrel to balance their budgets, and only Kuwait among the Middle Eastern and North African nations is set to post a fiscal surplus this year, the IMF said.

The oil-price decline makes it “all the more urgent to begin tackling the underpricing of energy products in oil-exporting countries,” where subsidies are widespread, it said.

Among the region’s oil importers, Lebanon and Egypt will benefit the most in fiscal terms, while Morocco will experience the biggest improvement in its external balance as a result of cheaper crude, the IMF said.

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