WASHINGTON, 14 April 2005 — The prospect of continued high oil prices has boosted the outlook for Middle East oil producers this year, giving them a chance to improve the job market for their growing workforce, the IMF said yesterday.

The International Monetary Fund in its twice-yearly World Economic Outlook report said the Middle East as a whole could expect growth in 2005 of five percent after 5.5 percent in 2004. Among oil exporters output is projected to dip from 5.7 percent in 2004 to 5.2 percent this year. But the IMF added that “with oil prices currently well above the baseline used in the World Economic Outlook forecasts, there is a clear upside risk to this projection.”

It noted that crude prices were likely to remain high over the medium term, which it said “presents an important opportunity for oil exporters to press ahead with reforms needed to boost medium-term growth, increase employment prospects for the rapidly growing working age population and reduce existing vulnerabilities.” The report also said decisions by Middle East oil producers could have an impact — as yet uncertain — on current imbalances in the global economy.

The combined current account surpluses of these countries, which are at present substantial, will likely decline as increased domestic consumption and investment spur imports.

As a result, according to the IMF, a shift in their financial flows could affect international financial markets, “although it is difficult to know where the investments are directed.”

The fund said that in Iraq inflation had risen sharply in recent weeks and a tighter monetary policy was now needed. “With the elections completed, the government must focus its efforts on developing institutions to support a market-based economy, on reconstructing infrastructure, and on maintaining macroeconomic stability,” the IMF said.

In Saudi Arabia, the task now is to curb spending and increase non-oil revenue to strengthen the underlying budgetary structure. While Lebanon has taken advantage of higher oil prices through increased capital, remittance and tourist inflows from elsewhere in the Middle East, it faces “financial market uncertainties” from the political upheaval that followed the Feb. 14 assassination in Beirut of former Prime Minister Rafik Hariri.

Iran, in addition to benefiting from stronger oil prices, is also taking advantage of previously applied reforms that have privileged the non-oil sector, according to the IMF. Economic activity has been underpinned by expansionary monetary and budget policies, but with inflation at about 15 percent, higher interest rates are needed.

In Egypt, the IMF said, the priorities now are to reduce public spending and debt and to control inflation through stricter monetary policy.