You are here: Home » PTI Stories » National » News
Business Standard

IMF warns Arab states against complacency over debt

Business Finance

AFP  |  Dubai 

The International Monetary Fund today warned Arab states against complacency over a looming debt crisis, urging continued economic reforms despite a rise in oil prices.

Crude prices have rebounded in the region thanks to a deal by producers to trim production, but the IMF said such a change in fortunes should not get in the way of overhauling state spending.

"Required reforms include further steps toward full elimination of energy subsidies, and changes to pension and social security systems -- including revisions to retirement age and benefits," the IMF said in its Regional Economic Outlook for May.

Jihad Azour, director of the IMF's Middle East and Central Asia department, told AFP higher oil prices should spur change.

"We should not be complacent... oil prices are going up. That definitely does not mean that we should not introduce the reforms. On the contrary, the current environment offers the opportunity to accelerate some of these reforms," Azour said.

Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016.

Overall growth in the Middle East and North Africa (MENA) region, which includes all Arab countries and Iran, was forecast by the IMF to reach 3.2 percent this year compared to just 2.2 percent in 2017.

The partial recovery in oil prices will be a boost for the Gulf Cooperation Council states -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates -- which supply almost a fifth of global crude oil.

After the GCC saw their economic growth shrink by 0.2 percent last year, impacted by a 0.7 percent contraction by the Saudi economy, their economy is expected to return to growth in 2018.

The Council's economy is forecast to grow by 2.2 percent this year and 2.6 percent in 2019, the IMF said.

Following the oil price slump in mid-2014, GCC members undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.

Azour said that Saudi Arabia's economic consolidation measures to cut a persistent budget deficit and diversify the economy away from oil remains the correct policy.

"The current strategy that is based on reaching a balanced budget by 2023 is the right one," he said.

Despite the improved economic forecast, the IMF estimated cumulative overall fiscal deficits in the region to be $294 billion in 2018-22.

Around $71 billion of government debt is expected to mature during the same period.

"The rapid buildup of debt in many of them (MENA countries) is a cause for concern. Debt has increased by an average of 10 percentage points of GDP each year since 2013, with countries financing large fiscal deficits," the IMF report said.

An impending increase in interest rates, making borrowing more expensive, will complicate the problem, it added.

According to the IMF, the economy of oil-importers should grow by 6.2 percent annually to maintain unemployment at the current rate of 10 percent.

MENA countries need to create 25 million new jobs over the next five years, Azour said, while warning of the negative consequences of unemployment coupled with rising debt levels.

"The average debt in the region for oil-importing countries exceeds 80 percent," of gross domestic product (GDP), he said, stressing such a figure is "beyond what is acceptable.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, May 02 2018. 11:55 IST