Oil exports in the Middle East and North Africa are expected to decline by $300bn in 2015 due to the recent slump in prices, according to the Institute of International Finance (IIF).
For the GCC, the aggregated current account surplus will shrink from $266bn in 2014 to about $40bn in 2015, and the fiscal position will shift from a surplus of 4.6% of GDP to a deficit of 7.4%, the IIF said in a new report.
It also reduced its growth forecast for the Gulf region by 0.4% points to 3.4% in 2015. However, outside the oil sector growth will remain strong at 4.5%, only slightly lower than last year, the report said.
“While overall growth in the oil exporters will moderate and the large fiscal surpluses will decline or shift to significant deficits, low oil prices may encourage an acceleration and deepening of structural reform efforts to improve energy efficiency and diversify their economies,” the IIF said.
It added that non-oil countries in the region will benefit from the fall in oil prices through reduced oil import bills and lower fuel subsidies.
In its baseline forecast, the IIF said the price of Brent oil is projected to average $60 per barrel in 2015 and $72 per barrel in 2016.
Oil prices could be lower if sanctions on Iranian crude oil exports start to be lifted after end-June of this year and if Libya’s oil production recovers significantly, the report added.
For the short term, the IIF said ample public foreign assets and low debt in the GCC countries will mitigate the adverse impact of low oil prices on economic activity and allow public spending to continue growing, albeit at a lower pace than in recent years.
The report noted: “If the oil slump continues beyond the near term, we expect most oil exporters to move more seriously towards a fiscal consolidation stance to avoid a significant rundown of foreign assets.
“Low-priority projects could be postponed or phased over time without impeding longer-term growth prospects or diversification efforts.
“The tax base could be broadened, including through the introduction of a value–added tax (VAT) that would provide additional sources of non-oil revenue and thus reduce the burden of adjustment needed on the expenditure side. More importantly, the rapid pace of growth in domestic consumption of petroleum products could be reduced.”
The IIF added that banking systems in the GCC, with relatively limited reliance on external funding and comfortable liquidity, should be reasonably resilient to low oil prices in the next couple of years.
“The expected modest increase in interest rates in the US during the second half of this year and further increases in 2016 may tighten financial conditions in the GCC countries because of their exchange rate peg, and eventually lead to some deceleration in the growth of credit to the private sector.”
