Arab states warned against complacency over debt

Arab states warned against complacency over debt
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur a change in the region’s fortunes. (AP)
Updated 02 May 2018

Arab states warned against complacency over debt

Arab states warned against complacency over debt
  • Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016
  • After the GCC saw their economic growth shrink by 0.2 percent last year, their economy is expected to return to growth in 2018

DUBAI: The International Monetary Fund on Wednesday warned Arab states against complacency over a looming debt crisis, urging continued economic reforms despite a rise in oil prices.
Crude prices have rebounded in the region thanks to a deal by producers to trim production, but the IMF said such a change in fortunes should not get in the way of overhauling state spending.
“Required reforms include further steps toward full elimination of energy subsidies, and changes to pension and social security systems — including revisions to retirement age and benefits,” the IMF said in its Regional Economic Outlook for May.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur change.
“We should not be complacent ... oil prices are going up. That definitely does not mean that we should not introduce the reforms. On the contrary, the current environment offers the opportunity to accelerate some of these reforms,” Azour said.
Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016.
Overall growth in the Middle East and North Africa (MENA) region, which includes all Arab countries and Iran, was forecast by the IMF to reach 3.2 percent this year compared to just 2.2 percent in 2017.
The partial recovery in oil prices will be a boost for the Gulf Cooperation Council states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE — which supply almost a fifth of global crude oil.
After the GCC saw their economic growth shrink by 0.2 percent last year, impacted by a 0.7 percent contraction by the Saudi economy, their economy is expected to return to growth in 2018.
The Council’s economy is forecast to grow by 2.2 percent this year and 2.6 percent in 2019, the IMF said.
Following the oil price slump in mid-2014, GCC members undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.
Azour said that Saudi Arabia’s economic consolidation measures to cut a persistent budget deficit and diversify the economy away from oil remains the correct policy.
“The current strategy that is based on reaching a balanced budget by 2023 is the right one,” he said.
Despite the improved economic forecast, the IMF estimated cumulative overall fiscal deficits in the region to be $294 billion in 2018-22.
Around $71 billion of government debt is expected to mature during the same period.
“The rapid buildup of debt in many of them (MENA countries) is a cause for concern. Debt has increased by an average of 10 percentage points of GDP each year since 2013, with countries financing large fiscal deficits,” the IMF report said.
An impending increase in interest rates, making borrowing more expensive, will complicate the problem, it added.
According to the IMF, the economy of oil-importers should grow by 6.2 percent annually to maintain unemployment at the current rate of 10 percent.
MENA countries need to create 25 million new jobs over the next five years, Azour said, while warning of the negative consequences of unemployment coupled with rising debt levels.
“The average debt in the region for oil-importing countries exceeds 80 percent,” of gross domestic product (GDP), he said, stressing such a figure is “beyond what is acceptable.”


Oil prices rise as market awaits deal output deal

Updated 03 December 2020

Oil prices rise as market awaits deal output deal

Oil prices rise as market awaits deal output deal
  • OPEC and its allies create uncertainty with two-day delay to meeting to decide whether to increase production

LONDON: Oil prices rose on Wednesday as the market awaited a pact from producers on output, which many traders expect will continue to be reined in, and Britain’s approval of a COVID-19 vaccine gave hopes for a demand recovery a boost.

Prices were hit earlier by a surprise build in oil inventories in the US and as OPEC and its allies created uncertainty with a two-day delay to a formal meeting to decide whether to increase production in January.

Brent crude oil futures were up 1.9 percent at $48.31 in late afternoon trade in London, while West Texas Intermediate crude was also up about 2 percent to $45.46.

Industry data from the American Petroleum Institute showed US crude inventories rose by 4.1 million barrels last week, compared with analysts’ expectations in a Reuters poll for a draw of 2.4 million barrels.

The Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, a group known as OPEC+, postponed talks on next year’s oil output policy to Thursday from Tuesday, according to sources.

The group this year imposed production cuts of 7.7 million barrels per day (bpd) as the coronavirus pandemic hit fuel demand.

It had been widely expected to roll those reductions over into January-March 2021 amid spikes in COVID-19 cases.

But the UAE said this week that even though it could support a rollover, it would struggle to continue with the same deep output reductions into 2021.

“Energy markets will remain on edge until OPEC+ gets past tomorrow’s meeting. Oil prices should continue to have underlying support as vaccine makers announce start dates for beginning immunizations,” he added.

Britain on Wednesday became the first western country to approve a COVID-19 vaccine, jumping ahead of the US and the EU in what may be a first step toward a return to normal life and boost to oil consumption.