The International Monetary Fund (IMF) has stated that the oil-exporting countries in the Middle East, especially the GCC, would lead the region’s post-COVID economic recovery.
According to the IMF’s most recent Regional Economic Outlook (REO), the region’s available real GDP data points to a solid recovery from the third quarter of 2020 as countries eased lockdown measures.
Oil exporters
Many GCC economies are benefiting from higher oil prices and early vaccine rollouts. The recent increase in oil prices will boost confidence and support non-oil GDP, which is expected to expand by 3.3 percent in 2021.
The IMF has revised growth rates of GCC economies substantially higher from its last update in October 2020. According to the most recent REO, the UAE and Saudi Arabia will increase by 3.1 percent and 2.9 percent in 2021, respectively, compared to projected contractions of 5.9 percent and 4.1 percent.
While Oman is expected to emerge from a recession this year with a growth rate of 1.8 percent, Bahrain is expected to rise at a rate of 3.3 percent. Kuwait is projected to increase at the lowest rate in the GCC with 0.7 percent, while Qatar is forecasted to expand at 2.4 percent in 2021.
Oil activity will remain subdued in the short term as a result of the OPEC + production cuts and the US embargo on Iran, as per the reports.
Jihad Azour, the IMF’s Director of the Middle East and Central Asia Department said, “Within the region, countries with above-average fiscal support in 2020 are expected to return to pre-pandemic GDP levels in 2022. In contrast, those with below-average support will not see a return to 2019 levels until 2023.”
By mid-2020, most GCC countries’ purchasing managers’ indices (PMI) has returned to the expansionary territory, and some oil exporters, such as Qatar, Saudi Arabia, and the UAE, continued to show an upward trend.
Oil exporters’ fiscal balances are projected to improve dramatically as a result of higher oil revenue. The increase in oil prices is expected to markedly improve oil exporters’ external position. Their current account balance is projected to increase by $128 billion.
Oil importers
Oil importers, in general, showed contraction less than during the pandemic’s first phase, as lockdowns were re-imposed. Workers’ remittances also held up better than expected.
According to the report, “Flows rebounded in the third quarter of 2020 after a sizable drop in the second quarter, reflecting a combination of factors, including a broad improvement in third-quarter growth in remittance-sending countries, an accelerated switch to formal transfer channels because of border closures, and incentives for electronic transfers.”
Oil importers’ recovery is expected to be slow in the short term, with a growth forecast at 2.3 percent in 2021, down 0.4 percent point from October. Growth projections for Jordan, Morocco, and Tunisia, which are highly dependent on tourism, have been marked down. The economies of Egypt and Pakistan, which were relatively resilient in 2020 and are expected to recover slowly in 2021.
Lebanon is the only country in the region where activity is expected to contract further, representing the severe economic and financial crisis exacerbated by the pandemic’s second wave.
Inflation is expected to remain at double-digits in fragile and conflict-affected states such as Lebanon, Libya, Sudan, and Yemen driven by domestic macroeconomic instability.
With the recovery underway, fiscal balances are expected to improve across the region as a result of higher revenues and the expiration of pandemic-related steps, as well as the resumption of fiscal consolidation in some countries such as Egypt, Iraq, Jordan, Oman, and Pakistan with elevated debt burdens.
Since several countries will need to resolve fiscal and debt problems, high funding needs could limit the policy space needed to support the recovery. Average public gross financing needs in 2021–22 in the regions’ emerging markets are anticipated to remain elevated, hitting 37 percent of GDP per year in Bahrain and Egypt.
