Spending by Middle Eastern oil exporters cushions global financial crisis impact, says IMF

Discussing the economic outlook for the economies of the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) at the Dubai International Financial Centre, he noted that the impact in terms of growth is being seen but it is more muted, thanks also to a stronger starting position in some countries.

The IMF expects the MENAP oil exporters, including the Gulf Cooperation Council nations, to grow at 3.6% in 2009, down from 5.6% in 2008.

"For the oil exporters, the decline in oil prices and OPEC production cuts are projected to reduce oil export receipts by almost 50% in 2009. This implies a loss of government revenue to the tune of $300bn compared to 2008. Nevertheless, most governments—especially those in the GCC—have so far indicated that they will maintain their spending and investment plans."

Ahmed said.

"As a result, oil exporters' current account surplus of around $400bn in 2008 is expected to turn into a deficit of $30bn in 2009. For most countries, this deterioration is from a position of significant strength, and thus can comfortably be sustained by the large stock of reserves that these economies have built up," Ahmed said.

"Thus, by continuing to spend, oil-exporting countries are contributing substantially to supporting global demand and are acting as stabilizers during the global downturn" he added.

"Emerging markets and developing countries in the region are projected to slow to 3.6% in 2009, from 6.3% in 2008. The global slowdown will clearly have a significant impact on growth through lower exports, tourism, remittances, and higher cost of credit. However, spending by oil exporters will soften this impact on countries that have strong trade and investment links with them," he said.

"Because of the relatively high public debt ratios and the much more difficult financing outlook, the scope for counter-cyclical policies is limited for most of the emerging market countries," he added.

"Risks to the outlook are tilted to the downside. The global economy is going through its most severe economic crisis since the Great Depression with global growth projected to be only 0.5% during 2009. Against this background, the risks to the outlook for the countries in the region include the following: First, if oil exporters cut their long-term oil price expectations and, consequently, their spending, growth prospects would be weaker for the entire region. Second, a more prolonged global recession would imply even weaker exports, tourism, and remittances for most MENAP emerging markets and developing countries. Finally, if asset price corrections deepen and the impact of asset price corrections feed through to corporate and, ultimately, bank balance sheets, some financial institutions in the region may be under stress," Ahmed concluded.