DUBAI - Economic growth in the energy-rich Gulf will recover in 2018 from a contraction last year but remains vulnerable to volatility in crude oil prices, the IMF said on Tuesday.
The global lender predicted that an overall energy price recovery from 2015-2016 lows would spur the economies of the six-nation Gulf Cooperation Council to grow by 2.4 percent in 2018 and 3.0 percent in 2019, after a contraction of 0.4 percent last year.
Grouping Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, the GCC states together pump over 17 million barrels per day and depend heavily on crude revenues.
But "the growth outlook for oil exporters remains subject to significant uncertainty about the future path of oil prices," the IMF said in its Regional Economic Outlook for the Middle East and North Africa (MENA).
After their earlier extended recovery, oil prices have shed a fifth of their value in just one month, with Brent crude trading Tuesday at under $70 a barrel for the first time since April.
The IMF's director for the Middle East and Central Asia, Jihad Azour, said the decline in oil prices will not impact the lender's forecasts because they were based on prices of around $70 a barrel.
"It is clear that oil prices are volatile and becoming more so recently," said Azour, who urged GCC states to consolidate their economic stability.
"If there is one lesson to learn from this it is that countries need to ... use this as an opportunity to increase their (fiscal) buffers, reduce their level of deficit ... and as away to accelerate some of their structural reforms," Azour said.
He said that oil prices are forecast to further decline to around $60 a barrel.
Azour said that while GCC states have made some progress in economic reforms and the introduction of value-added tax by Saudi Arabia and the UAE, they still need to do more.
They have to rationalise spending, reduce current expenditures used mainly for salaries and defence, redirect subsidies to serve the needy only and raise spending on the infrastructure and education, he said.
The IMF still needs a few months to assess the implementation of VAT in Saudi Arabia and UAE "but based on the feedback we got from authorities it was smooth and the impact on prices was fairly limited," he added.
The IMF called on GCC states, which are among the few countries with no taxation regimes, to impose corporate and personal income tax in order to diversify their revenue sources.
Azour said that the IMF has not raised this politically sensitive issue with authorities in the Gulf states.
Sanctions squeeze Iran
Growth in non-GCC oil exporters in the MENA region, which include Iran, Iraq, Algeria and Libya, is projected to slow to 0.3 percent in 2018, from three percent the previous year, and pick up to 0.9 percent in 2019, the IMF said.
"This largely reflects the expected impact of the re-imposition of US sanctions on Iran, which is likely to reduce Iranian oil production and exports significantly over the next two years at least," the IMF said.
It projected Iran's economy will shrink by 1.6 percent this year and 3.6 percent in 2019.
For oil-importing countries in MENA, growth is expected to continue at a pace of 4.5 percent in 2018, before dropping back to four percent next year, the IMF said.
This level of growth is not sufficient to create the required jobs for a region marred by instability and civil strife, it said.
Oil revenues for MENA exporters have increased by about $260 billion (230 billion euros) over the period 2016 to 2018.
This has mostly been due to a price rise generated as a result of production cuts in nations belonging to the OPEC cartel, as well as non-OPEC producers.
The current account balance will turn from a deficit into a surplus and overall budget shortfalls will decline, the IMF said.