GCC economies set to reap $1.4tn in additional oil windfall in 5 years, IMF says

Gulf economies will receive up to $1.4 trillion in additional revenue in the next four to five years as oil prices remain high and headline inflation keeps low in the six-member economic bloc, the International Monetary Fund has said.

“We expect the oil price, compared to last year, to increase by 55 per cent, which will improve their growth prospects, but also it will be a big windfall in terms of capital flows,” Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told an online panel discussion on Tuesday. “If we look at the next four to five years to give you the order of the magnitude, we are expecting more than 1tn to $1.4tn of additional revenues to oil exporting countries, especially to the GCC,” Mr Azour said.

These countries have their challenges in terms of policies and economic headwinds, but they are benefiting from the consumer price-driven headline inflation remaining low. “Therefore, they are not suffering like other countries through the increase in basic food and commodity prices,” Mr Azour said.

The world is facing a commodities super cycle, driven by Russia’s military offensive in Ukraine, which has slowed economic growth momentum, dented global trade and exacerbated inflationary pressures.

Western sanctions on Russia, the world's second-largest energy exporter, have affected global energy supplies. Oil prices, which rose 67 per cent in 2021, rallied to a notch under $140 per barrel in March before giving up some gains. They are still up 60 per cent since last year.

Average petroleum spot prices have fluctuated between $98 and $130 per barrel since the Ukraine conflict began and are expected to settle at about $107 in 2022 — an increase of about $43 compared with an October estimate, the IMF said. They are also above the 2019 average of $61.4 a barrel.

Emirates NBD expects Brent, the benchmark for more than two thirds of global crude, to average $120 per barrel in 2022, which benefits oil exporting economies that generate a major chunk of their revenue from the sale of hydrocarbons.

Outside the GCC, other oil exporting economies in the broader Middle East and North Africa region are also receiving a boost from the rise in hydrocarbon prices, with their 2022 growth prospects improving further as they increase production volumes, the IMF said.

“They will enjoy and will lead growth in 2022,” Mr Azour said. “Even in 2021, the[ir] recovery was stronger than the other [countries] because they took the right measures in terms of the way [they fought] Covid and also accelerated the transformation of the non-oil sector.”

However, many of the regional economies are facing a sharp rise in headline inflation as their import bills to buy basic commodities swell. Ad hoc policymaking will have to take a backseat and decision-makers should strive for structural reforms, particularly in oil importing nations, for long-term economic and fiscal stability.

Lebanon, which is going through the worst economic crisis in its history, is one such example, panellists said.

Lebanon's economy collapsed after it defaulted on about $31 billion of eurobonds in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market. Political bickering and indecision by the previous parliament forced the economy into a tailspin.

Inflation in the country has continued to surge and reached 206 per cent in April as the country elected a new parliament, which will have to put in place reforms to secure $3bn from the IMF.

“You have to restructure the banking and financial sector. You have to restructure the debt, you have to look at issues such as social protection given the large increase in the degree of poverty,” Nasser Saidi, former Lebanese economy minister and founder of consultancy Nasser Saidi & Associates, said.

“A middle income country has been reduced to a third world, or even, fourth world country in the short space of two years." While there is "some optimism in that there is change in the political landscape”, the likelihood of the new government forcing unpopular reforms is low, he added.