Saudi Arabia and Iran: IMF report tells a tale of two economies

Shoppers in the Iranian capital, Tehran. The White House has announced that it is calling an end to six-month waivers that have exempted several countries from US sanctions on Iranian oil exports. (AFP)
Updated 30 April 2019

Saudi Arabia and Iran: IMF report tells a tale of two economies

  • While the IMF raised the prospect of a gentle improvement for the Kingdom’s economy in 2019 — largely dependent on oil prices — Iran is set for a steep recession this year
  • The Iranian outlook has dragged down economic forecasts for Middle East and North African oil exporters, with growth projected at just 0.4 percent

DUBAI: The contrasting prospects for the Saudi Arabian and Iranian economies were highlighted in the latest regional outlook report delivered by the International Monetary Fund (IMF) yesterday in Dubai.
While the IMF raised the prospect of a gentle improvement for the Kingdom’s economy in 2019 — largely dependent on oil prices — Iran is set for a steep recession this year under the threat of “zero exports” of crude in accordance with US policies over Tehran’s nuclear program.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, forecast that Iranian gross domestic product (GDP) would slump 6 percent, and that inflation could rise to as much as 35 percent as sanctions bite.
The Iranian outlook has dragged down economic forecasts for Middle East and North African oil exporters, with growth projected at just 0.4 percent. Falling oil production and tighter domestic financial and monetary conditions also depressed the IMF forecast for the wider region.
However, the outlook for Gulf Cooperation Council (GCC) countries is better, with the IMF projecting growth of 2.1 percent this year, up from 2 percent last year as government spending and long-term infrastructure plans boost GCC economies.
The Kingdom especially could experience a jump in GDP this year from the IMF’s original forecast, Azour said. “We think there are upside risks, growth could be slightly higher than the one we have in our projections,” he told Reuters. In January the IMF cut its forecast for Saudi GDP growth to 1.8 percent.
The IMF, which is currently conducting a review in the Kingdom under its Article 4 provisions, also said that the Saudi budget deficit could reach 7.9 percent this year, on the assumption that oil prices would be lower in 2019 than last year’s average.
Azour said that the first-quarter budget surplus reported by Riyadh last week was due to “an exceptional transfer that was done that directly led to an increase in revenues.
“The Saudi objective to balance the budget by 2023 is an objective that goes in the right direction. Over the past year we’ve seen some fiscal expansion that helped the economy to recover, and growth in the non-oil sector is higher than the average growth in the economy.
“However, in the long term it’s still very important to ensue that fiscal consolidation is taking place to achieve a balanced budget. Both on the expenditure side and on the non-oil revenue side it is important that there is clarity,” he added.
Despite the negative economic outlook for Iran, Azour said there was little chance of contagion spreading to the rest of the region as a result of Iranian problems, because the country was relatively disconnected from trading patterns in the region. “The Iranian economy is not integrated — integration is at a very low level. All the years of sanctions have made them inward looking,” he said.
The IMF forecast that GDP in the UAE would grow at 2.8 percent this year and 3.3 percent next, with the increase due to the stimulus of construction and other activity in preparation for Expo 2020, as well as “the full deployment of fiscal stimulus packages.” Abu Dhabi, for instance, has announced a $50 billion package of infrastructure and employment initiatives designed to boost growth.
The IMF also unveiled a new “social unrest index” to measure protests and disturbances in the region, which it attributed largely to youth unemployment. No GCC counties are included in the index.


France ready to take Trump’s tariff threat to WTO

Updated 08 December 2019

France ready to take Trump’s tariff threat to WTO

  • Macron government will discuss a global digital tax with Washington at the OECD, says finance minister

PARIS: France is ready to go to the World Trade Organization to challenge US President Donald Trump’s threat to put tariffs on French goods in a row over a French tax on internet companies, its finance minister said on Sunday.

“We are ready to take this to an international court, notably the WTO, because the national tax on digital companies touches US companies in the same way as EU or French companies or Chinese. It is not discriminatory,” Finance Minister Bruno Le Maire told France 3 television. Paris has long complained about US digital companies not paying enough tax on revenues earned in France.

In July, the French government decided to apply a 3 percent levy on revenue from digital services earned in France by firms with more than €25 million in French revenue and €750 million ($845 million) worldwide. It is due to kick in retroactively from the start of 2019.

Washington is threatening to retaliate with heavy duties on imports of French cheeses and luxury handbags, but France and the EU say they are ready to retaliate in turn if Trump carries out the threat. Le Maire said France was willing to discuss a global digital tax with the US at the Organization for Economic Cooperation and Development (OECD), but that such a tax could not be optional for internet companies.

“If there is agreement at the OECD, all the better, then we will finally have a global digital tax. If there is no agreement at OECD level, we will restart talks at EU level,” Le Maire said.

He added that new EU Commissioner for Economy Paolo Gentiloni had already proposed to restart such talks.

France pushed ahead with its digital tax after EU member states, under the previous executive European Commission, failed to agree on a levy valid across the bloc after opposition from Ireland, Denmark, Sweden and Finland.

The new European Commission assumed office on Dec. 1.