A shift towards non-hydrocarbon activities as the growth engine of oil-exporting economies in the Middle East and North Africa (MENA) is poised to slow the expansion of their gross domestic product (GDP ) in 2023, the International Monetary Fund (IMF) said this week.
MENA oil exporters are forecast to post a collective 3.7 percent increase in GDP “as positive momentum in the retail and services sectors (Kuwait, Saudi Arabia, UAE) continues thanks to to abundant liquidity, the continued push for reforms and the rapid acceleration of private investment (Saudi Arabia), partially offsetting the impact of slow growth in major trading partners”.
The shift to non-oil sources of income is evident in the cuts in oil production, the lender said in its economic outlook report for the Middle East and Central Asia. The Organization of the Petroleum Exporting Countries Plus (OPEC+) has set a group production cap of two million barrels per day (bpd) from November 2022 to December 2023. Eight OPEC+ nations said , in addition, on April 2 that they will cut production in addition to the agreed collective setback. last year. Separate announcements by OPEC members Algeria, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates and OPEC allies Kazakhstan, Oman and Russia represent a combined reduction of 1.649 million bpd from May to December.
The IMF raised its real GDP growth projection for the MENA region for 2022 to 5.3% due to better-than-expected growth in oil exporters Bahrain, Libya, Qatar, Saudi Arabia and the United Arab Emirates, as well as oil importers Jordan and Mauritania. , Morocco and Tunisia. But the IMF presented a different scenario for 2023.
“Real GDP growth for MENA oil exporters is expected to slow from 5.7% in 2022 to 3.1% in 2023 (and broadly maintain this pace in 2024), as the main engine of growth for most oil exporters is shifting to non-hydrocarbon activities, reflecting agreed oil production cuts,” the Washington-based agency said.
For Central Asia and the Caucasus, a drop in oil prices is likely to drag the current account balance of the region’s oil exporters by 5.4 percent of GDP on average. The IMF projected spot oil prices to average $74.2 a barrel in 2023 and $70 in 2024, down from $85.5 and $80.2 in October 2022, respectively . “Oil futures curves point to prices falling to $62.70 in 2028,” he added.
The economies of the Caucasus and Central Asia are expected to slow to 4.3% this year before recovering to 4.5% in 2024, according to the IMF.
Reduction in growth due to inflation
For both CCA and MENA, tight monetary policies in response to high inflation would contribute to the economic slowdown, the IMF said. Core inflation has remained elevated since the final months of 2022, despite some moderation in headline inflation, partly due to an energy-driven decline in commodity prices, the report said.
The tightening of monetary policy, or the raising of interest rates by central banks, around the world has also contributed to the slowdown in headline inflation, or consumer price inflation, including items with movements of volatile prices. But this policy trend has also begun to “temper demand and contain price pressures,” the IMF said.
Implications of energy prices for households, economies
Although oil prices are expected to fall, the cost of energy has remained high for households, according to the report.
“In the short term, and where fiscal space allows, countries should prioritize targeted and temporary support, with cash transfers to protect the most vulnerable from still high energy and food prices,” he said.
At the macro level, the IMF recommended that oil-exporting economies “manage oil revenues carefully, avoid expansion of current expenditures and improve budget transparency.”
“Fiscal efforts should address the challenges posed by climate change, energy transition and economic diversification by continuing to mobilize non-oil revenues with reforms to increase the efficiency of tax collection and the rationalization of the wage bill,” he added.
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