Transcript of the Press Conference on the Middle East and Central Asia 2015 Economic Outlook Update and Low Oil Prices
IMF News, January 21, 2015
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- Published: January 21, 2015
Global and regional backdrop
- Sharp decline in oil prices: "declined by more than half from their peak last summer" to levels not seen since a short period in 2009.
- Three global themes affecting the region:
- Oil price shock: combination of supply and demand factors and uncertainty about duration and eventual settlement of prices.
- Deepening recession in Russia: Russia "is now expected to shrink by three percent in 2015" versus an October projection of "growth of half a percent".
- Downward revisions to large economies: global growth projection for 2015 "has been lowered to three point five percent", "about point three percent lower than what we had projected in October"—reflecting reassessment in China, other emerging markets, the Euro area, and Japan.
- Regional security disruptions: ongoing conflicts in Syria, Iraq, Libya, Yemen, and continued challenges in Afghanistan and Pakistan with economic and political spillovers.
Oil exporters — impacts, projections, and policy advice
Findings and projections
- GCC export earnings: export earnings "are expected to decline this year by about $300 billion", "which is about a fifth of their economy" compared to October projections.
- Current account outcomes: many oil exporters see sharp declines in current account surpluses; "in some cases they have turned negative".
- Role of buffers: many oil exporters have "large buffers in the form of foreign assets" accumulated during higher oil prices and intend to draw on them to smooth spending.
- Growth projections:
- Middle East and North Africa (oil exporters): expected to post "growth rate this year of about three percent", compared with "two point seven percent of growth that they had in 2014" and "one percentage point lower than what we were projecting for 2015 in October" (October projection was "four percent").
- Caucasus and Central Asia (CCA) oil exporters: growth "will be around five percent this year", "about one percentage point lower than what we had been projecting in October".
Medium-term considerations
- Countries differ in starting positions: some have more reserves and more time to adjust; others will need quicker action as reserves are drawn down rapidly.
- If oil prices remain lower as futures markets suggest, "spending plans will need to be revisited" and spending should be prioritized toward economic and social development objectives.
Policy recommendations
- Near-term: use buffers to avoid disruptive, knee-jerk cuts; pursue counter-cyclical spending in a measured way.
- Medium-term fiscal adjustment: moderate the rate of growth of public spending to protect intergenerational equity.
- Energy pricing reform: continue raising energy prices to eliminate generalized subsidies and replace them with targeted safety nets; even after the price decline, "energy prices are still below the new oil prices" in many oil exporters.
- Diversification and private sector development: accelerate efforts to make private sector growth self-sustaining rather than dependent on government spending; improve the business environment to encourage non-oil private activity.
Oil importers — impacts, projections, and policy priorities
Findings and projections
- Short-term benefits: lower oil prices reduce import bills and, where applicable, reduce the fiscal cost of energy subsidies—providing breathing space.
- Offsetting negatives: slowdown in Russia, stagnation in the Eurozone, and falls in prices of other commodities (e.g., phosphates, iron ore) can offset oil-price benefits for some importers.
- Growth projections:
- Middle Eastern oil importers: expected to grow "at about four percent this year", "better than last year by about one percentage point" and "not very different from what we were saying in October".
- CCA oil importers: expected to grow "at four and a half percent this year", "which is half a percentage point below what we were projecting in October" because the slowdown in Russia outweighs oil-price benefits.
Policy priorities
- Use breathing space to persevere with structural reforms aimed at job creation; "jobs is the key to finding a sustainable growth model".
- Maintain focus on diversification of exports where commodity price declines affect non-oil export sectors.
Country and region-specific notes and figures
- Russia: expected to "shrink by three percent in 2015" (revised down from growth of "half a percent" projected in October).
- Global growth: "three point five percent" for 2015; revision "about point three percent lower than what we had projected in October".
- GCC export earnings shortfall: "$300 billion" lower than October projections, "about a fifth of their economy".
- Middle East & North Africa oil exporters: growth "about three percent" in 2015; 2014 growth was "two point seven percent"; October 2014 projection for 2015 was "four percent".
- CCA oil exporters: growth "around five percent" in 2015; about "one percentage point lower" than October projection.
- CCA oil importers: growth "four and a half percent" in 2015; "half a percentage point below" October forecast.
- UAE specifics:
- IMF composite oil price assumption for 2015: "57 dollars".
- UAE fiscal deficit in 2015: "around three and a half percent of GDP".
- UAE growth projections: "three and a half percent" for 2015 and 2016.
- Dubai: growth "4.5" percent for this year and "4.6" percent next year.
- Abu Dhabi: aggregate growth "three percent" for this year and next; non-oil growth "over five and a half percent" this year and next.
- With gradual adjustment and futures-based recovery, UAE could begin posting budget surpluses again "from 2017".
- Jordan:
- IMF projection for 2015 GDP growth: "3.8 percent" (revised down from October projection of "four percent").
- Fiscal impact of lower oil prices on Jordan: roughly neutral overall—some savings (transportation, cash transfers) offset by lost energy taxation revenues.
- Futures market signal cited: current futures indicate oil prices "around 50" today but "over the next five years, they work their way back up to over 70".
- Market uncertainty: oil markets price both upside and downside risks, including potential supply disruptions (e.g., Yemen, other producers) and unexpected production changes.
Scenarios and strategic guidance
- Short-term shock absorption scenario:
- Use reserves to smooth fiscal spending and limit immediate impact on growth.
- Maintain measured, counter-cyclical support where buffers permit.
- Medium-term adjustment scenario:
- Reassess and prioritize spending plans in light of a lower-for-longer oil price outlook.
- Implement fiscal measures that moderate spending growth and protect intergenerational equity.
- Structural transformation scenario:
- Accelerate energy-pricing reform to remove generalized subsidies and introduce targeted safety nets.
- Intensify reforms to diversify economies and strengthen private-sector-led, non-oil growth and job creation.
Transcript of the Press Conference on the Middle East and Central Asia 2015 Economic Outlook Update and Low Oil Prices — January 21, 2015