The International Monetary Fund (IMF) on Monday urged Gulf oil producers to speed up economic reforms, restrain spending, and raise non-oil revenues to reduce fiscal risks of a continuous period of lower oil prices.
“There is an immediate impact from the drop in oil prices,” Masood Ahmed, the Director of the Middle East and Central Asia department at the IMF, said during a presentation of the Regional Economic Outlook for the Middle East, North Africa and Pakistan in Dubai.
Ahmed warned that should oil prices fall to $75 a barrel for a sustained period, that Gulf economies would see projected fiscal surpluses of $275 billion plunge to around $100 billion.
Should oil prices remain low, this would add to pressure on these regional governments to cut spending and slash energy subsidies, the report said.
The IMF warned that falling oil prices could slash gross domestic product (GDP) growth by 1% in the oil-rich Gulf Cooperation Council nations — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
Saudi Arabia, Oman, and Bahrain could see a budget deficit in 2015 if their spending plans do not change to adapt to the fall in oil prices, the IMF report warned.
The IMF report, which was prepared prior to the recent 25% plunge seen in oil prices, says that fiscal surpluses of regional oil exporters will fall from a peak of 7.75% of GDP in 2012 to around 1.25% GDP in 2015 before vanishing by 2017.
Fiscal balances would deteriorate without reform, even if the price in oil remained at its peak level in 2014, the IMF said.
A 12% fall in oil revenues could be seen with an additional 1 million barrels a day of oil supply outside the region, which would weaken fiscal balances by around 3% of GDP, according to the report.
“In aggregate, after reaching a peak of 7.75% of GDP in 2012, the oil exporters’ fiscal surplus is expected to be only 1.25% in 2015 and to vanish by 2017. Even if oil prices remain at their peak 2014 levels, fiscal balances will deteriorate if policies do not change. Moreover, an unanticipated additional 1 mbd of oil supplied from outside the Middle East, North Africa, Afghanistan and Pakistan region from 2015 onward could, by one estimate, lead to an approximately 12% fall in oil revenues, which would likely weaken fiscal balances by 3% of GDP,” according to the report.
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