CAIRO, 24 April 2004 — The Middle East is enjoying an economic recovery driven by high oil prices but is still threatened by regional uncertainties, notably Iraq, the International Monetary Fund said this week.

The IMF’s semi-annual World Economic Outlook said gross domestic product growth would also slow a little in 2004, from 5.1 percent to 4.1 percent, as oil prices drop and output falls outside of Iraq. But the world body expected growth to rebound to 5.0 percent in 2005. “Accelerating global growth is expected to underpin non-oil activity in 2004-05, but the growth of oil production in most oil exporters is projected to slow sharply as Iraqi oil output comes back on stream,” the Fund said. “Geopolitical uncertainties and the unsettled security situation in some countries constitute important downside risks.”

Unemployment rates across the region remained high, and, in some countries, budget deficits were large or expected to re-emerge as oil revenues dripped away, the IMF said.

“Thus, medium-term growth prospects depend crucially on structural reforms and, in some countries, fiscal consolidation to address vulnerabilities,” it said.

In Iraq, oil output had recovered to pre-war levels but security had deteriorated significantly, industrial capacity was underutilized and unemployment high, the Fund said. “In this environment, external support - including debt relief - is essential, and policies need to focus on capacity building, reconstruction, and macroeconomic stability,” it said.

In the oil-exporting countries, higher world oil prices and increased oil production in 2003 led to surges in real economic growth, stronger current account surpluses, and sharp improvements in government budget balances.

But the Fund warned, “Looking ahead, growth rates are expected to slow, current account surpluses to decline, and fiscal balances to weaken, as oil production quotas fall in 2004 and world oil prices ease in 2005, the Fund said.

“Thus, in most countries, fiscal consolidation is essential to reduce vulnerability to oil price fluctuations, including steps to broaden the non-oil revenue base, strengthen expenditure management, and reduce current outlays.”

All oil-exporting countries in the region must spur growth in the non-oil sector, reform labor markets, encourage foreign investment and enhance the role of the private sector, the Fund said.

Kuwait recorded its largest revenues in more than 25 years on the back of high oil prices and a rise in output, and achieved a surplus for the fifth straight year in fiscal 2003-2004, a specialist report said.

The emirate finished the year ending March 31 with total revenues of 6.93 billion dinars ($23.1 billion), the best figures since 1979, the independent Al-Shall Economic Consultants said.

Oil revenues reached 6.15 billion dinars ($20.5 billion), compared with budget projections of 2.97 billion dinars ($9.9 billion). Non-oil income reached 775.5 million dinars ($2.6 billion).

Actual revenues were almost 95 percent higher than budget projections of $11.85 billion, mainly attributed to the hike in oil income which soared 107 percent over budget estimates.

Libya meanwhile said its potential oil reserves could be more than 100 billion barrels, three times higher than currently proven, and that many US firms have expressed interest in developing them once Washington’s sanctions are lifted.

If the figure is confirmed, Libya would be sitting on nearly 10 percent of the world’s current total reserves, with a hydrocarbon wealth similar to Kuwait’s.

Energy Minister Fathi Omar ibn Shatwan told an international business conference, “I invite all oil companies to invest in Libya,” adding that Tripoli might adopt before the end of the year a new law on hydrocarbons to streamline the operations of foreign companies.

The Tripoli business conference, organized by London-based company IBC, was the first of its kind to be held here since the lifting of the UN sanctions.

General Board of Ownership Transfer director, Mahamud Ahmed Al-Ftise, told AFP Libya will open in July the capital of 54 large state-owned manufacturers, each valued at a minimum of $150 million, to foreign investors.

They include iron and steel plants, cement plants, engineering firms and food factories, and are among 360 state-owned companies that the government wants to privatize in the 2004-2008 period.