The steep decline in oil prices presents new economic realities for oil-exporting countries in the Middle East, North Africa, Afghanistan and Pakistan (MENAP) and Caucasus and Central Asia (CCA) regions, said IMF (International Monetary Fund).
The IMF projects oil exporters in the MENAP and CCA regions to have large export and revenue losses. In the countries of the Gulf Cooperation Council (GCC) which are most affected oil and gas export earnings are expected to go down by about USD 300 billion. For importers, lower prices provide relief through lower energy import bills, which could help governments, producers, and consumers.
The global institution advised exporters to avoid abrupt spending cuts despite the unfavorable developments in the oil market while urging importers to treat savings from lower prices as transitory.
"Fortunately, most oil exporter governments have the financial resources to avoid a steep reduction in their spending plans for this year. Over the medium term, however, they would need to gradually but decisively adjust their fiscal positions to ensure sustainability and intergenerational equity," said Masood Ahmed, director, IMF Middle East Department.
"Importing countries are well-advised to avoid entering into spending commitments that would be hard to reverse if oil prices returned to higher levels," he added.
Oil prices have declined by more than 55% since September 2014 to levels not seen since a short period in 2009. The drop is estimated to have been driven by both supply and demand factors: higher-than-expected supply, particularly from the United States, was not offset by production cuts by the Organization of the Petroleum Exporting Countries (OPEC) members, just as global oil demand (especially from China, Japan, and the euro area) was weakening.
Over the medium term, the outlook for oil prices is likely to depend on how oil investment and production respond to lower oil prices. It will also depend on whether OPEC resumes its role as the swing producer or whether oil prices will be more strongly influenced by the marginal cost of shale oil production, the IMF said.
Plummeting oil prices are expected to lead to significant declines in the fiscal balances of oil exporters in the MENAP and CCA regions. Except for Kuwait, Qatar, and Turkmenistan, all countries in the region are expected to run fiscal deficits in 2015. For countries in the CCA, the impact of lower oil prices is compounded by the deepening recession in Russia, to which CCA countries are closely linked through trade, remittances, and foreign direct investment, the report said.
"Looking ahead, government spending will likely be constrained for a number of years. This means that the current growth model which is anchored in rising oil prices and government spending will no longer work. Instead, countries will need to further diversify their economies and enable the private sector to become a self-sufficient engine of growth and jobs," Ahmed said.
"Sustained growth of over 8% would be needed to markedly reduce unemployment and raise people's incomes," Ahmed added.
