(MENAFN- Gulf Times) The rebound in oil prices is gradually lifting the growth prospects for the Middle East, according to the International Monetary Fund, although the IMF has cautioned against weak investor confidence among other issues confronting the region.
The region, along with North Africa, Afghanistan and Pakistan, is set to see economic growth of 3.4% this year, better than a previous projection of 3.1%, the Washington DC-based IMF said.
At the same time it cut the growth forecast for 2017 to 3.3%, down from 3.5% in April, citing fallouts from 'terrorism” and geopolitical tensions.
In the Middle East, oil exporters are benefiting from the recent modest recovery in oil prices while continuing fiscal consolidation in response to structurally lower oil revenues,” the IMF said.
'Geopolitical tensions, domestic armed strife, and terrorism are also taking a heavy toll on the outlook in several economies, especially in the Middle East, with further cross-border ramifications,” it said.
In a report last month, the IMF said the value of oil and natural gas exports in the GCC states and Algeria was projected to fall by almost $450bn this year compared with 2014. It also estimated that their cumulative budget shortfalls would hit $900bn as a whole by 2021.
That said, the IMF has praised the reform measures initiated across the GCC region while insisting that more needs to be done.
The IMF cut its forecasts for global economic growth this year and next as the unexpected UK vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.
'If not for Brexit, the global forecast would have been slightly higher,” the IMF said recently.
It is too early to gauge the real impact of Brexit on the GCC economies, but the low oil price environment has brought in a different set of challenges for the six Gulf economies.
The key focus in the first quarter of the year was on budget stabilisation in the face of sharply lower oil revenues. Efforts in this direction included cut in subsidies, particularly on utilities, rein in spending, and raise non-oil revenue.
In the second quarter, the emphasis appears to have shifted to raising external financing to cover expected budget shortfalls. Data indicate that the GCC governments have issued $17bn in bonds so far this year, more than what was issued in the whole of 2009, at the height of the financial crisis.
Economists say that in some respects, the outlook for global interest rates, post-Brexit, seems marginally positive for the GCC. With interest rates in the US, Europe and the advanced markets expected to remain lower for longer, the highly rated bonds issued by the GCC governments are likely to prove very attractive for institutional investors, who are on the hunt for yield.
As GCC governments are gradually turning to external financing, the pressure on domestic interbank rates should ease as well, they point out.