Corruption is ‘key threat’ to Middle East economies, IMF chief warns

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Christine Lagarde, managing director of the International Monetary Fund, has warned that the economies of the Middle East face a challenging time. (File/AFP)
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Christine Lagarde, managing director of the International Monetary Fund, has warned that the economies of the Middle East face a challenging time. (File/AFP)
Updated 10 February 2019
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Corruption is ‘key threat’ to Middle East economies, IMF chief warns

  • Hard-hitting analysis by IMF chief as leaders gather for World Government Summit
  • She was speaking at the Arab Fiscal Forum that traditionally precedes the World Government Summit

DUBAI: Corruption, poor governance and a lack of transparency are the key challenges facing Middle East economies, International Monetary Fund chief Christine Lagarde has warned in a hard-hitting analysis of the region’s economic prospects.

Speaking ahead of the opening day of the World Government Summit in Dubai, Lagarde also warned of the impact for regional economies if further measures to implement good governance practice and transparency were not put in place. 

The IMF is planning talks with regional policymakers to implement new frameworks to strengthen governance and tackle corruption, “the great disruptor of fiscal policy,” she added.

Her hard-hitting analysis of the region’s economic prospects come against the background of a weakening outlook for global economies. The IMF recently downgraded its forecasts for global growth.

“Unfortunately, the region has yet to fully recover from the global financial crisis and other big economic dislocations over the past decade,” she told regional finance ministers.

“Among oil importers, growth has picked up, but it is still below pre-crisis levels. Fiscal deficits remain high, and public debt has risen rapidly—from 64 percent of GDP in 2008 to 85 percent of GDP a decade later. Public debt now exceeds 90 percent of GDP in nearly half of these countries,” Lagarde said.

She went on: “The oil exporters have not fully recovered from the dramatic oil price shock of 2014. Modest growth continues, but the outlook is highly uncertain—reflecting in part the need for countries to shift rapidly toward renewable energy over the new few decades, in line with the Paris Agreement.

“With revenues down, fiscal deficits are only slowly declining—despite significant reforms on both the spending and revenue sides, including the introduction of VAT and excise taxes. This has led to a sharp increase in public debt—from 13 percent of GDP in 2013 to 33 percent in 2018.”

The bottom line, the IMF boss said, is that "the economic path ahead for the region is challenging. This makes the task of fiscal policy that much harder, which in turn makes it even more important to build strong foundations to anchor fiscal policy.”

She said that there was scope to improve fiscal frameworks in the region, to offset the impact of short-termism and lack of fiscal credibility.

“I am referring to such factors as large amounts of spending kept off-budget and poor risk management. Across the region, it is common for sovereign wealth funds to directly finance projects, bypassing the normal budget process. And state-owned enterprises in some countries have high levels of borrowing—again, outside of the budget,” Lagarde said.

She commended Saudi Arabia and some other Middle East countries for setting up macro-fiscal units, but added: “Perhaps the oil exporters could follow the example of other resource-rich countries such as Chile and Norway in using fiscal rules to protect key priorities such as social spending from commodity price volatility,” she suggested.

Without such a framework, corruption - “a social poison” - becomes a greater risk. “Without trust in the fairness of the tax system, it becomes harder to raise the revenue needed for critical spending on health, education, and social protection. And governments might be tempted to favor white elephant projects instead of investments in people and productive potential. Add this up, and we have a recipe for unsustainable fiscal policy combined with social discord,” Lagarde added.

She was speaking at the Arab Fiscal Forum that traditionally precedes the World Government Summit, which formally opens Sunday for three days of high-level discussion and debate by world thought leaders from the worlds of public policy, business and entertainment.

Pakistan's Prime Minister Imran Khan, actor Harrison Ford and Lebanese Prime Minister Saad Hariri are among 4,000 delegates who will attend the three-day event, along with Estonia’s prime minister Jüri Ratas and President of Rwanda Paul Kagame.


Oil prices rise on gains prompted by tensions between US and Iran

Updated 25 June 2019
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Oil prices rise on gains prompted by tensions between US and Iran

  • Russian energy minister praises international cooperation to stabilize oil markets

LONDON: Oil prices rose on Monday, extending large gains last week that were prompted by tensions between Iran and the US, as Washington was set to announce new sanctions on Tehran.

West Texas Intermediate crude was up 50 cents, or 0.87 percent, at $57.93 a barrel.

Brent futures were up 9 cents, or 0.14 percent at $65.29 a barrel by 1040 GMT.

US President Donald Trump said on Friday he called off a military strike in retaliation for the shooting down of a US drone by Iran, saying the potential death toll would be disproportionate, adding on Sunday that he was not seeking war.

Oil prices surged after Iran shot down the aircraft on Thursday that the US claimed was in international airspace and Tehran said was over its territory.

Brent racked up a gain of about 5 percent last week, its first weekly gain in five weeks, and WTI jumped about 10 percent, its biggest weekly percentage gain since December 2016.

But US Secretary of State Mike Pompeo said “significant” sanctions on Iran would be announced on Monday aimed at further choking off resources that Tehran uses to fund its activities in the region.

British Foreign Minister Jeremy Hunt said the UK believed neither the US nor Iran wanted a conflict but warned tensions could lead to an “accidental war.”

Also boosting prices, global supply may remain tight as OPEC and its allies including Russia appear likely to extend their oil cut pact at their meeting July 1-2 in Vienna, analysts said.

“An extension of OPEC+ production cuts through the end of the year seems highly likely given recent price action,” US investment bank Jefferies said in a note.

“The market expects an extension though, and any failure could see oil price gap down. The probabilities favor restraint however,” it added.

Russian Energy Minister Alexander Novak on Monday said international cooperation on crude production had helped stabilize oil markets and is more important than ever.

“There is a good example of successful cooperation in balancing the oil market between the OPEC countries and non-OPEC. Thanks to joint efforts, we today see a stabilization of world oil markets,” Novak said.

Boosting oil demand, prospects of a near-term interest rate cut by the Federal Reserve aimed at bolstering the US economy have weakened the dollar.

Oil is usually priced in dollars, and a slide in the value of the weaker greenback makes it cheaper for holders of other currencies.

Separately, Iranian crude exports have dropped so far in June to 300,000 barrels per day (bpd) or less after the US tightened the screws on Tehran’s main source of income, industry sources said and tanker data showed, deepening global supply losses.

The US reimposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and six world powers. Aiming to cut Iran’s sales to zero, Washington in May ended sanctions waivers to importers of Iranian oil.

Iran has nonetheless sent abroad about 300,000 bpd of crude in the first three weeks of June, according to two industry sources who track the flows. Data from Refinitiv Eikon put crude shipments at about 240,000 bpd.

“It’s a very low level of real crude exports,” said one of the sources.

The squeeze on exports from Iran, a member of the Organization of the Petroleum Exporting Countries, is a key factor for the producer group and its allies, which meet on July 1-2 to decide whether to pump more oil in the rest of 2019.

Iran’s June exports are down from about 400,000-500,000 bpd in May as estimated by the industry sources and Refinitiv and a fraction of the more than 2.5 million bpd that Iran shipped in April 2018, the month before President Donald Trump withdrew the US from the nuclear deal.

Iranian exports have become more opaque since US sanctions returned in November, making it harder to assess volumes.

Tehran no longer reports its production figures to OPEC and there is no definitive information on exports since it can be difficult to tell if a vessel has sailed to a specific end-user.

Refinitiv Eikon data showed Iran has exported 5.7 million barrels of crude in the first 24 days of June to the United Arab Emirates, Turkey, Singapore and Syria, although these may not be the final destinations.

Kpler, another company which tracks oil flows, estimates that Iran loaded 645,000 bpd of crude and condensate, a light oil, onto tankers in the first half of June, of which 82 percent are floating in Gulf waters.

That would put actual crude exports in the first half of the month even lower than 300,000 bpd.

“American restrictions are having a clear effect on Iran’s ability to sell into global markets,” Kpler said.