The GCC countries will be most affected among oil-exporting countries by the decline in oil prices, pushing oil and gas export earnings down by about US$300 billion in 2014, predicted the IMF.
For importers, lower prices provide relief through lower energy import bills, which could help governments, producers, and consumers.
In its update of the Regional Economic Outlook, the IMF advised exporters to avoid abrupt spending cuts despite the unfavourable developments in the oil market, while urging importers to treat savings from lower prices as transitory.
“Fortunately, most oil exporter governments have the financial resources to avoid a steep reduction in their spending plans for this year. Over the medium term, however, they would need to gradually but decisively adjust their fiscal positions to ensure sustainability and intergenerational equity,” IMF Middle East Department Director Masood Ahmed said. “Importing countries are well advised to avoid entering into spending commitments that would be hard to reverse if oil prices returned to higher levels.”
Economies that are particularly dependent on oil exports, including Qatar, Iraq, Libya and Saudi Arabia, would be hit hardest by the more than 50% decline in petroleum prices, the IMF said. It said that oil exporters should “prudently treat the oil price decline as largely permanent”.
Non-oil exporters – Morocco, Lebanon and Mauritania – were expected to gain most from falling crude prices, while Lebanon and Egypt were likely to see improved fiscal balances, the IMF said. However, falling crude prices would not translate immediately into major gains for oil importers in the Middle East and Central Asia, which had been hurt by the slowing growth prospects of key trading partners in the Eurozone and Russia.
Fiscal deficit
The IMF said nearly every exporting country in the Middle East and Central Asia was expected to run a fiscal deficit this year because of the oil price shock, which prompted the IMF to downgrade the region’s growth prospects by as much as one percentage point compared with its October forecasts, to 3.4% for 2015.
All Gulf states except Kuwait are expected to have to fund fiscal deficits this year in response to “rising social pressures and infrastructure development goals” and plunging oil prices.
As a result, the growth in government spending by Gulf states, except Qatar, is expected to slow this year. The IMF said the resulting decline in non-oil fiscal deficits is smaller than the loss of revenue, “suggesting that countries are using their fiscal buffers”.
Still, the countries will need to cut spending and overhaul their budgets to protect against long-term damage to their economies. The fall in prices also increases the urgency of governments to fuel greater diversity in their economies.