The contrasting prospects for the Saudi Arabian and Iranian economies were highlighted in the latest regional outlook report delivered by the International Monetary Fund (IMF) yesterday in Dubai.
While the IMF raised the prospect of a gentle improvement for the Kingdom’s economy in 2019 — largely dependent on oil prices — Iran is set for a steep recession this year under the threat of “zero exports” of crude in accordance with US policies over Tehran’s nuclear program.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, forecast that Iranian gross domestic product (GDP) would slump 6 percent, and that inflation could rise to as much as 35 percent as sanctions bite.
The Iranian outlook has dragged down economic forecasts for Middle East and North African oil exporters, with growth projected at just 0.4 percent.
Falling oil production and tighter domestic financial and monetary conditions also depressed the IMF forecast for the wider regionowever, the outlook for Gulf Cooperation Council (GCC) countries is better, with the IMF projecting growth of 2.1 percent this year, up from 2 percent last year as government spending and long-term infrastructure plans boost GCC economies.
The Kingdom especially could experience a jump in GDP this year from the IMF’s original forecast, Azour said. “We think there are upside risks, growth could be slightly higher than the one we have in our projections,” he told Reuters. In January the IMF cut its forecast for Saudi GDP growth to 1.8 percent.
The IMF, which is currently conducting a review in the Kingdom under its Article 4 provisions, also said that the Saudi budget deficit could reach 7.9 percent this year, on the assumption that oil prices would be lower in 2019 than last year’s average.
Azour said that the first-quarter budget surplus reported by Riyadh last week was due to “an exceptional transfer that was done that directly led to an increase in revenues.
“The Saudi objective to balance the budget by 2023 is an objective that goes in the right direction. Over the past year we’ve seen some fiscal expansion that helped the economy to recover, and growth in the non-oil sector is higher than the average growth in the economy.
“However, in the long term it’s still very important to ensue that fiscal consolidation is taking place to achieve a balanced budget. Both on the expenditure side and on the non-oil revenue side it is important that there is clarity,” he added
Despite the negative economic outlook for Iran, Azour said there was little chance of contagion spreading to the rest of the region as a result of Iranian problems, because the country was relatively disconnected from trading patterns in the region. “The Iranian economy is not integrated — integration is at a very low level. All the years of sanctions have made them inward looking,” he said.
The IMF forecast that GDP in the UAE would grow at 2.8 percent this year and 3.3 percent next, with the increase due to the stimulus of construction and other activity in preparation for Expo 2020, as well as “the full deployment of fiscal stimulus packages.” Abu Dhabi, for instance, has announced a $50 billion package of infrastructure and employment initiatives designed to boost growth.
The IMF also unveiled a new “social unrest index” to measure protests and disturbances in the region, which it attributed largely to youth unemployment. No GCC counties are included in the index.