(MENAFN- The Peninsula) The Peninsula
Driven by strong oil prices, the region's economic prospects in 2017 should improve. The monthly Purchasing Managers Indices (PMIs), support this outlook with all showing an ongoing upswing in January-April 2017, indicating better growth prospects ahead, PwC said its first in a series of regular economic bulletins on the Middle East. The report, which builds on a range of similar publications published by the firm globally, looks at the dominant themes driving Middle Eastern economies and the opportunities and challenges ahead for the region.
According to PwC economists, 2016 was probably the low point for oil exporters. Oil prices still remain well below break-even levels for most oil exporters and fiscal reform and deficit financing will continue to be key policy priorities in 2017 and beyond.
PwC stressed three key challenges for the region's economies. First, low oil prices resulted in large fiscal deficits for oil producing countries that now need to be reined in. GCC governments collectively registered a deficit of around -11.1 percent of GDP in 2016, ranging from an estimated -3.6 percent in Kuwait to a burdensome -20.6 percent for Oman Second, fiscal reforms are hard to do and even harder to sustain: energy subsidies were cut across the board (resulting in a GCC average of 2.8 percent inflation); popular backlash against rising petrol prices has caused some governments to reconsider this policy and yet many more difficult reforms are in the pipeline. And finally, the issue of hidden costs for oil importing countries manifested in sizable structural deficits in countries like Egypt and indirectly, negatively affecting countries that heavily rely on remittances and exports from the GCC.
Whilst this environment creates challenges for business, such as managing new taxes, the report identified a growing number of opportunities, particularly as the major Gulf economies look for alternative sources of financing. This includes the debt markets and privatisation initiatives.
Richard Boxshall, PwC Middle East's Economist said:"The flurry of activity in debt markets, privatisation and PPPs has only just got started and should generate interesting business opportunities in the next few years. Investors can expect to see GCC economies make increasing use of international debt markets."
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