IMF sees Mideast improving but oil risk remains

Banking systems in the GCC could come under renewed "stress" if global financial conditions deteriorate again, the IMF warned on Thursday.

In its October World Economic Outlook, the IMF (the International Monetary Agency) said although rebounding oil prices and signs of a global recovery had improved the outlook for the Middle East - the region would be at risk if the international economy came under pressure once more.
 
”The key risk to the outlook is the possibility that the global recovery may not be sustained and that oil prices may fall sharply, which could have important implications for oil exporters and their regional trading partners,” the IMF said in the report.
 
“This expenditure compression could have important regional spillover effects on the oil-importing countries by significantly reducing worker remittances. Another risk is that the banking systems of several oil-exporting countries could come under severe stress if global financial conditions tighten again,” the IMF added.

Any worsening of the global economic picture could see oil exporters cut public spending to bolster their balance sheets, the report warned.

The UAE’s banking system was hit hard last year during the deepening global recession.
 
Last October the UAE central bank unveiled a AED70bn ($19bn) bailout package for struggling lenders.  
In its report the IMF also advised central banks to ‘modestly’ cut their interest rates if economies slow.
 
At the start of last month the UAE central bank cut the interest rate on its AED50bn liquidity facility from 2.5 percent to 1.5 percent in a bid to spur lending.

Kuwait, Saudi Arabia and the UAE have all reduced interest rates as inflation has fallen.

Inflation is forecast to decline in the Middle East from 15 percent in 2008 to 8.3 percent in 2009, the IMF said.

GDP growth for the region is predicted to grow at 2 percent in 2009 and 4.25 percent the following year, according to the report.

The current account surplus of the region is projected to narrow by 15.75 percent of GDP in 2009, thanks to a sharp reduction in oil exports from Kuwait, Qatar, and Saudi Arabia, it added.

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