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IMF sees less Gulf spending if global crisis continues

Gulf Arab oil producers could curb spending if economic conditions remain poor into 2010 - a scenario that would affect economies across the Middle East, an International Monetary Fund official has said.

Oil exporters' decision to stick to spending plans for 2009 has helped cushion Middle Eastern economies from the impact of the global slowdown, Masood Ahmed, IMF director for the Middle East and Central Asia, told an economic conference in Beirut.
"But how long will they decide to maintain their spending? If 2010 also turns out to be a bad year, it may well be that some of these countries will decide to slow down on the level of new projects that are coming up.

"And if they slow down, that will have an effect not just on their economies, but on the economies of the other countries in the region," Ahmed said.

The IMF in February forecast that the economic growth of Gulf Arab oil exporters would slow by almost half to 3.5 percent this year, with the Middle East earning about $300 billion less from crude oil exports.

"Since then, our view of where the world economy is going has become a little bit more pessimistic this year," Ahmed told Reuters on the sidelines of the Arab Economic Forum.

"At the same time there's been an upturn in the price of oil ... so the important thing for us is that there's no real reason for us to fundamentally change the outlook for those countries."

A Reuters poll conducted last month forecast that the economy of Saudi Arabia, the world's top oil exporter, would grow by just 0.3 percent in 2009, while the United Arab Emirates would register zero percent growth and Kuwait would shrink.

The outlook for remittances, which are vital to the economies of Middle Eastern oil importers such as Lebanon, would depend "very much on what happens to construction in the GCC (Gulf Cooperation Council) countries", Ahmed said.

"Remittances generally tend to be quite stable, even in difficult periods. But already in Lebanon, in other countries, you are beginning to see some reduction," he said.

The Gulf states have been an important source of employment for Arabs from non-oil exporting economies across the region.

The IMF believes oil importing states with the scope to carry out fiscal and monetary stimulus policies should do so, Ahmed said. "We are saying ... this is the moment to do it. We say: 'Use your reserves for a rainy day'. Well, this is a rainy day."

Ahmed also highlighted a risk from a fall in stock market values and asset prices. "The impact of the asset price fall on the balance sheets of banks is still working its way through the system," he said. (Reuters)

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