Major oil producing countries in the Middle East and its neighbors might benefit from higher crude prices in 2019, according to the latest outlook from International Monetary Fund (IMF), but there are numerous uncertainties in the region.
The Fund’s latest regional economic outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, published Tuesday, warns that “multiple and intertwined risks cloud the outlook of the MENAP region.”
“These include a faster-than-anticipated tightening of global financial conditions, escalating trade tensions that could affect global growth and hurt key MENAP trading partners, geopolitical strains, and spillovers from regional conflicts,” the report stated.
These risks could trigger a deterioration in financial market sentiment and greater financial market volatility, the Fund said, “aggravating the financing challenges for countries with high levels of debt or large refinancing needs.”
Oil producing countries in the Middle East have traditionally relied on oil exports as their source of government revenue. Volatility in oil markets amid imbalances in supply and demand have prompted a number of countries, particularly in the Gulf, to look to diversify their economies away from oil and to create more jobs in other sectors of the economy. In its latest summary on the MENAP region’s outlook, it encouraged countries to commit to further reforms.
“The outlook and the rising risks underscore the need to intensify efforts to raise growth to levels that generate enough jobs for the benefit of all,” the IMF said. “In this context, countries should expand access to finance, strengthen governance, improve education outcomes, and enhance labor market flexibility, particularly in the Gulf Cooperation Council (GCC).”
To ensure that future fiscal adjustment is as growth-friendly and equitable as possible, the Fund said countries need to both prioritize expenditure on “growth-enhancing and high-quality investment in human capital and physical infrastructure, while sustaining well-targeted social spending.” It also advocated a move to a more progressive tax structure to diversify the governments’ revenue bases.
Jihad Azour, director of the Middle East and Central Asia at the IMF, told CNBC on Tuesday that the MENAP report comes amid an uncertain global growth outlook.
“Global conditions are changing in terms of the risk metrics,” Azour told CNBC’s Dan Murphy. “Although we’re still enjoying a high level of growth, that growth is plateauing,” he added.