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The low price of oil is still weighing heavily on Middle Eastern producers, and will require spending cuts to plug their budget gaps, the International Monetary Fund (IMF) said on Wednesday, in a sign that the Gulf region’s oil exporters face a tough road ahead paved with spending cuts and structural reforms—in addition to potentially cutting crude oil output.
After hitting a 10-year low of below US$30 in January 2016, oil prices have experienced some level of recovery. But despite a rebound to the US$40-50 range, the IMF has essentially the same outlook for the oil market that it had in its previous forecast in April of this year: prices are seen to average US$43 a barrel this year and US$51 next year, the IMF said in its regional economic outlook for the Middle East, North Africa, Afghanistan, and Pakistan.
“Over the medium term, any further oil price recovery is expected to be limited, with futures markets suggesting prices will remain below $60 by 2021,” the organization said.
The Gulf Cooperation Council (GCC) economies need deep structural reforms to attract foreign investments and boost private sector activity to diversify away from their overreliance on oil and public spending, the IMF noted.
“Now we're getting into some of the more difficult areas, such as looking at the public sector wage bill,” the IMF director for the Middle East, Masood Ahmed, told AFP in an interview, commenting on the outlook released today.
These measures may be difficult to implement, but they are necessary if the GCC countries are to achieve more sustainable budgets, the official noted.
In its outlook, the IMF said that it expected the economy of the region’s largest oil exporter, Saudi Arabia, to grow by just 1.2 percent this year, compared to 3.5 percent last year—the lowest pace of growth since 2009. Next year, the Saudi economy is expected to expand by 2.0 percent, in a sign that this year may be the bottoming-out line, with next year just a hair’s breadth above bottom.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.