IMF: Middle East oil nations to emerge from downturn faster

There is particular optimism for the economic outlook of the oil exporting Middle East nations, comprising largely of the Gulf states, where strong oil revenues combined with an extensive programme of business diversification has put them in a relatively strong position.

Between them they have amassed a $400bn surplus, thanks largely to oil prices, and have dipped into this to keep their economies healthier than those of their western counterparts.

The IMF predicts that if oil prices continue in the short term to be $50 or so a barrel, then these governments will fall into deficit, but again a relatively small $10bn between them. GDP for oil exporting nations is expected to fall sharply from 5.4% to 2.3%, mainly because of its weaker price and cuts in production. However, GDP from oil itself will suffer a greater fall, from 2.4% to -3.5%

But as governments have continued to spend money on public infrastructure projects it has not only cushioned their own economies, but also had a positive impact on neighbouring oil importer countries, such as Jordan and Lebanon.

'Most oil exporters are using the reserves from the boom years to continue public spending and this is protecting their economies and helping neighbouring economies,' said Masood Ahmed, Director of the Middle East and Central Asia Department at the IMF.

The move by GCC countries to diversify their economies over recent years is also paying off, protecting their financial positions and making them more likely to come out of the global recession quicker than in countries such as the US.

While GDP from non oil revenues will shrink from 6.1% to 3.7% this year in the Middle East and Asia - and be about 3% in the GCC - this is still better than in other world regions.

'The impact of the slowdown in this region is much more moderate than in other parts of the world and the key is to use this period to take advantage of the opportunities once this crisis is over,' said Ahmed.

GCC challenges

That also throws up many challenges for the region, because while 'this is the moment it should take action and play an active role in the world economy post crisis' it also means a degree of getting its own house in order in terms of corporate governance and transparency.

Nasser Saidi, Chief Economist at the DIFC Authority, who describes the current global fall as the New Great Depression, said there are many lessons to be learned from this period in time. He said that when Lehman Brothers collapsed and the impact of the global downturn began to be felt regionally, countries were ill-prepared for the shock it caused in the financial system.

'They didn't have the policy tools to address the crisis.'

But the shockwaves felt through the GCC prompted a strong reaction in the final quarter of 2008 to help address liquidity problems and governments in the Gulf should use this period to prepare themselves to play a greater role in future world economics.

This includes shoring up some of the weaknesses revealed in the financial system, strengthening corporate governance and promoting transparency, better financial regulation and the introduction of deposit insurance schemes.

'We are going to face a challenge because at the global level there will be substantial reforms of the global financial infrastructure. We have to prepare the banking system now to adopt them,' he said.

Examples, he said, included the failure of fragmented regulation, pointing to the response in the EU to bank problems, which he said, were not as strong as they could have been. One lesson as the GCC heads towards monetary union is to have a single financial authority.

Equally, the IMF has warned that there is no room for complacency in the GCC, as it still faces substantial risks. In particular, if the global recession lasts longer and its impact is deeper than is being predicted, then oil prices will continue to come under pricing pressure, damaging the economies of oil producing nations.

Additionally, even if economies stabilise next year as the IMF expects, unemployment is expected to continue to rise, as this normally lags any pick up.

But Saidi said that while now is the time for the GCC to develop its markets and not be complacent, it must become a bigger force on global markets.

'The message from this is that emerging markets can boost their voice and economic weight as a result of the crisis. The GCC is going to recover more quickly than advanced countries. If there are any green shoots [of recovery] you need to look at them in Asia and in particular in China than in Europe and the US, where recovery will take much longer.'