VOL. XLIV
No
33
13 August 2001
Middle East Economies Remain Vulnerable To Oil Price Fluctuations Says IMF
Terms
of trade volatility remains a serious issue of concern in the Middle East, where
oil price fluctuations continue to dominate economic developments, according to
the latest issue of the International Monetary Fund’s World Economic
Outlook. The latest issue, covering Fiscal Policy and Macroeconomic
Stability and dated May 2001, notes that terms of trade for the region have
soared by some 50% since the turnaround in oil prices post-1998. “Higher oil
revenues have largely been saved,” the report says, “leading to a
substantial improvement in fiscal and external imbalances in many countries.”
This strengthening of the terms of trade, says the IMF, has led to GDP growth of
4.8% in 2000, the highest since the early 1990s. And while oil prices are
expected to fall back somewhat, the fact that thus far they have been prudently
used will make the impact of lower prices “manageable”. As a result, GDP
growth is expected to remain robust in both 2001 and 2002,with fiscal and
external positions “able to absorb the bulk of the oil price fall”. Ongoing
volatility coupled with production cuts may create some downside risk, though,
and the IMF recommends a “prudent approach to fiscal policy…especially in
those countries – such as Saudi Arabia – that need to reduce government
debt”.
Moreover,
the IMF notes that continued oil price volatility underlines the need for
economic reform and economic diversification. In the GCC, the Fund says, the
focus should be on encouraging the expansion of the non-oil private sector. This
should include “removing impediments to foreign direct investment;
strengthening labor markets; and accelerating privatization”. In other
countries where state sectors dominate and widespread controls exist, the
challenge is more wide-ranging according to the IMF. “Iran, in a clear break
with the past, is enacting a welcome program of reforms, although in some areas
– notably price and trade liberalization, privatization and the development of
a social safety net – a bolder approach could pay dividends.”
In
the Mashreq countries (Egypt, Jordan, Lebanon, Syria and Palestine), the IMF
says GDP growth rose to 4.2% in 2000, while inflation remained under control.
Growth was strongest in Egypt, although the report notes that post-1997 external
shocks such as the appreciation of the US dollar, expansionary fiscal and
monetary policy and a slowdown in reform led to a deteriorating external
position and a decline in international reserves. The IMF notes that currency
depreciation (see related article above), has occurred and says that a new
regime should be operated in an appropriate manner.
The
IMF notes that in Egypt and other Mashreq countries, further reform of trade and
investment remains a priority. “Recent regional trade initiatives –
including the negotiation of Association Agreements with the European Union, so
far completed with Jordan and Egypt – are encouraging.” This, along with WTO
accession, says the IMF, could provide external anchors to underpin reform
efforts more generally. The report notes that in Lebanon, “the very high
fiscal deficit and public debt ratios remain a serious concern.”
Selected
Middle East Countries: Real GDP, Consumer Prices And Current Account Balance
(Annual Percentage Changes Unless Otherwise Noted)
|
|
Real
GDP |
|
Consumer
Prices1 |
|
Current
Account Balances2 |
|||||||||
|
|
1999 |
2000 |
2001 |
2002 |
|
1999 |
2000 |
2001 |
2002 |
|
1999 |
2000 |
2001 |
2002 |
|
Middle
East3 |
2.7 |
4.8 |
4.8 |
4.5 |
|
12.0 |
11.2 |
9.8 |
8.9 |
|
1.4 |
11.0 |
7.8 |
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
Exporters4 |
2.1 |
5.0 |
5.0 |
4.4 |
|
15.7 |
14.6 |
12.4 |
11.0 |
|
3.0 |
15.2 |
11.5 |
6.5 |
|
S. Arabia |
-1.0 |
4.1 |
4.8 |
3.0 |
|
-1.2 |
-0.6 |
- |
0.8 |
|
-1.2 |
8.6 |
7.3 |
1.3 |
|
Iran |
2.5 |
3.6 |
4.0 |
4.5 |
|
20.4 |
18.5 |
15.5 |
13.0 |
|
4.7 |
14.8 |
7.2 |
3.0 |
|
Kuwait |
-2.4 |
3.6 |
1.9 |
2.0 |
|
1.8 |
1.5 |
2.5 |
2.5 |
|
16.7 |
29.7 |
25.9 |
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mashreq |
4.1 |
4.2 |
4.1 |
4.9 |
|
2.0 |
2.2 |
2.6 |
3.1 |
|
-3.6 |
-3.0 |
--4.3 |
-4.9 |
|
Egypt |
6.0 |
5.1 |
4.5 |
5.3 |
|
3.8 |
2.8 |
2.8 |
3.0 |
|
-2.0 |
-2.0 |
-1.8 |
-2.2 |
|
Jordan |
3.1 |
4.0 |
3.0 |
4.5 |
|
0.6 |
0.7 |
1.8 |
2.3 |
|
5.0 |
5.0 |
-2.2 |
-1.7 |
_________________
Notes:
1.
In accordance with standard practice in the World Economic Outlook,
movements in consumer prices are indicated as annual averages rather than as
December/December changes during the year, as is the practice in some countries.
2.
Percent of GDP.
3.
Middle East, Malta and Turkey World Economic Outlook grouping excluding Malta
and Turkey.
4.
Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and UAE.
5.
Egypt, Jordan, Lebanon and Syria.