(MENAFN- Gulf Times) Oil export losses in 2015 are expected to reach $300bn or 21 percentage points of gross domestic product (GDP) in the Gulf, leading to a fiscal deficit, while the proposed hike in the US rates is likely to tighten financial conditions in the GCC (Gulf Cooperation Council), according to the International Monetary Fund (IMF).
As a result, current account surpluses are projected to decline this year to 1.6% of GDP (gross domestic product) in the GCC, said the IMF article 'Learning to Live with Cheaper Oil amid Weaker Demand'.
Lower oil prices have weakened the external and fiscal balances of oil exporters, including members of the GCC. Large buffers and available financing should allow most oil exporters to avoid sharp cuts in government spending, limiting the impact on near-term growth and financial stability.
Oil exporters should prudently treat the oil price decline as largely permanent and adjust their medium-term fiscal consolidation plans so as to prevent major erosion of their buffers and to ensure intergenerational equity, the IMF said.
Most oil exporters need oil prices to be considerably above the $57 projected for 2015 to cover government spending, which has increased in recent years in response to rising social pressures and infrastructure development goals, it said, adding as a result, the oil price decline is expected to significantly erode fiscal positions across the region.
The GCC's fiscal surplus (4.6% of GDP in 2014) is now projected to turn into a deficit of 6.3% of GDP in 2015. Qatar, the UAE, Saudi Arabia, Bahrain and Oman are expected to witness fiscal deficit of 1.5%, 3.7% 10.1%, 12.1% and 16.4% of GDP respectively this year, the IMF said.
The report said global interest rate and exchange rate developments, which are largely driven by the expected normalisation of the US monetary policy, also have a bearing on the regional outlook, albeit to a lesser extent than declines in commodity prices and external demand.
"The expected increase in the US interest rates is likely to tighten financial conditions, particularly in the GCC because of their exchange rate pegs, and to dampen the growth of private credit," it said, adding these interest rate spillovers are likely to occur with a delay because of slow pass-through.
So far, long-term yields in the MENAP (Middle East North Africa, Afghanistan and Pakistan) oil importers and the GCC have not been affected much by concerns about tightening US monetary policy, it found.
Stressing that the impact of lower oil prices on oil exporters' banking systems is likely to be muted in the near term, but downside risks are likely to increase over time; the report said GCC banking systems will be affected by the decline in oil prices, given the strong correlation between non-oil growth and government spending, but they should remain resilient owing to their high capital buffers, low nonperforming loans and generally high liquidity.
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