WASHINGTON, 22 September 2005 — The IMF yesterday urged Middle Eastern oil powers to avoid the mistakes of the past, notably by channeling their oil-related income to productive investment and in amounts that can be sustained.
The International Monetary Fund said that given the upward trend in oil prices, economic prospects in the Middle East were “favorable,” with growth in the region forecast to come to 5.4 percent this year, just down from 5.5 percent in 2004, and to five percent in 2006.
The IMF, in its twice-yearly World Economic Outlook, said the region’s oil wealth offered governments an opportunity to confront a critical challenge — providing employment for a rapidly growing working-age population. But the fund cautioned: “It will be critical to avoid two mistakes of the 1970s and early 1980s.”
To prevent boom-bust cycles, oil-powered state spending should be reserved for initiatives “that will have a lasting impact on growth, productivity and standards of living.” Otherwise, the IMF said, growth will fluctuate according to external market conditions.
The report also called attention to the need to increase spending in amounts that can be sustained. When such funding is cut off or drastically scaled back in response to market developments, the resulting social adjustment necessary can be unsettling and difficult to implement, according to the report.
The IMF said that in Saudi Arabia, real gross domestic product growth should rise to six percent this year from 5.2 percent in 2004 before slowing to 4.7 percent in 2006.
Thanks to higher oil revenue, the Kingdom has seen its budget surplus soar, with public debt expected to fall below 50 percent of GDP by the end of the year.
In Iran, economic growth is expected to edge up from 5.6 percent in 2004 to 5.7 percent this year before slipping back to 5.4 percent in 2006. Egypt should see “robust” growth of about five percent in 2005 and 2006 in response to export gains and a rebound in domestic demand.
