Reforms and diversification key to Gulf’s future growth prospects, IMF says

DUBAI, Oct 31 (Reuters) – Oil exporters in Arab Gulf countries are expected to set aside an average of around 33% of their oil revenues over the period 2022-26, leading to an improvement in the overall fiscal balance, the Fund said on Monday. international monetary policy, emphasizing the need to resist temptations to revert to pro-cyclical spending.

Rising oil and gas prices are expected to increase the average current account surplus of the six Gulf Cooperation Council (GCC) countries to 9.7% of GDP in 2022, from 4.6% of GDP a year last year, resulting in an additional surplus of $275 billion, the IMF says in its latest report.

“A lot of (Gulf states) are confirming that this time they will stick to their (fiscal discipline) plans… The proof is going to be in the pudding. You always have the temptation to go pro-cyclical,” said the IMF in the Middle East and the Center. Asia department director Jihad Azour told Reuters.

“Oil exporters must increase and strengthen their reserves and use this moment as a litmus test for sustainable diversification.”

Middle Eastern oil exporters are expected to outperform their peers with forecast growth of 5.2% this year after growing 4.5% in 2021, boosted by high oil prices and robust non-oil GDP growth offsetting rising global interest rates and rising food prices.

Growth is expected to moderate to 3.5% in 2023 as oil prices fall and global demand slows, the Fund added in its latest report.

For Saudi Arabia, the biggest exporter, the IMF predicts growth of 7.6% this year, slightly below the government’s forecast of 8% and against 3.2% in 2021.

Growth in the kingdom’s oil sector is expected to fall to 3.3% next year from 13.1% in 2022, while non-oil GDP is forecast at 3.8% in 2023 from 4.2% this year.

“Our policy recommendations for Saudi Arabia as well as other oil-exporting countries are to maintain the path of reforms that help diversify the economy, improve productivity (and) avoid pro-cyclical policies,” Azour said. .

The size of the non-oil sector has increased in Saudi Arabia, the United Arab Emirates and other Gulf states, with new sectors opening up and attracting investment, while the financial sector is ‘well capitalized, profitable and sound’ , said Azour.

He then told a press conference on Monday that the impact on the financial sector from Gulf central banks was “relatively limited” and largely in line with rate hikes by the US Federal Reserve, despite lower inflation in the region. region than the global trend. Most Gulf currencies are pegged to the US dollar.

“So far, this impact has been limited and strongly offset by…improving foreign exchange reserves…as well as improving fiscal positions, which will reduce the need for governments to borrow and crowding out the private sector,” he said.

Reporting by Rachna Uppal and Ghaida Ghantous Editing by Frances Kerry, Kirsten Donovan

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