HomeBusinessIMF Forecasts $1 Trillion Windfall For Oil Exporters, Higher Savings in Gulf

IMF Forecasts $1 Trillion Windfall For Oil Exporters, Higher Savings in Gulf

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IMF Forecasts $1 Trillion Windfall For Oil Exporters, Higher Savings in Gulf
IMF Forecasts $1 Trillion Windfall For Oil Exporters, Higher Savings in Gulf (Image: Bloomberg)

The International Monetary Fund expects energy exporters in the Middle East and Central Asia to make a cumulative windfall of around $1 trillion during 2022-2026, a bonanza that will contribute greatly to the Gulf Arab economies because they will save much more of their oil revenues.

The influx of petrodollars would be higher than projected by the IMF a year ago, a reflection of higher crude prices, even as recession fears are dragging oil lower in the second half of the year. Saudi Arabia and five other Gulf Cooperation Council members, already among the biggest gainers in emerging markets, will benefit even more, as they can save about a third of their oil revenues, according to the fund.

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It is “a significantly higher savings rate relative to those who entered negative territory following past declines in oil prices, a stark contrast to the pro-cyclical fiscal policies of the past,” the IMF said in its regional economic report released Monday.

Disruptions in trade and production after Russia’s invasion of Ukraine in February have pushed up the cost of commodities, contributing to cost-of-living crises around the world and keeping oil above $100 a barrel for much of the year.

But for big producers in the Middle East, the oil boom has had the effect of pushing budgets into the black for the first time in years, helping to finance spending and allowing some to pay off debt early.

The average current-account surplus for Gulf nations is expected to be nearly 10% of the gross domestic product in 2022, nearly double last year’s level, and on track to reach 7.8% by 2023, according to the fund.

The divergence with energy importers is now especially striking. The region’s emerging market and middle-income economies, including Pakistan, will see an increase in external financing needs this year to 242% of gross international reserves, or $275 billion, from 109% in 2021.

Larger Buffers

Forecasting that crude prices will be lower next year, the IMF forecasts GDP to grow by 3.6% in both the Gulf and the broader Middle East.

With high inflation, rising interest rates, a global energy crisis, and tightening credit markets, petrowealth in the Gulf has become more important than ever as a source of capital.

In the report, the IMF warned that “while general governments of oil exporters are expected to avoid the pro-cyclical responses of the past, there is a risk that other public entities, such as state-owned enterprises and sovereign wealth funds, will spend the windfalls from oil.”

International reserves in the GCC member nations (Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman) will amount to nearly $843 billion this year and grow to more than $950 by 2023, the fund estimates.

Stronger non-oil growth in the GCC, where much of the expatriate workforce consists of people from countries such as India and Pakistan, could support money transfers home by workers, according to the IMF. It predicts growth in remittances from the Gulf to the region’s poorest economies of between 1.9% and 3.4% per year in the medium term.

“Oil-exporting countries grew in the last two years not only because of the increase in oil prices and production but also because of the increase in the non-oil sector,” Azour said. “Improving its fiscal management, anchoring it in the medium term, will allow the State to be less dependent on oil money to finance itself.”

Source: Bloomberg

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