x Abu Dhabi, UAEMonday 24 July 2017

World Bank warns over 'extreme uncertainties'

The World Bank warns of "extreme uncertainty" for the Middle East in the year ahead, with the eurozone's debt crisis likely to stymie recovery from revolution in many countries.

Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi, speaks during an international energy symposium in Riyadh. (AP Photo/Hassan Ammar)
Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi, speaks during an international energy symposium in Riyadh. (AP Photo/Hassan Ammar)

Middle East and North African economies face "extreme uncertainties" amid a darkening global outlook, the World Bank warns.

In a report, the bank lowered its growth estimate for the world economy to 2.5 per cent this year compared with a projection little more than six months ago of 3.6 per cent.

The World Bank also warned that Middle Eastern governments may be forced to scale back spending plans if economic headwinds do not subside.

"Extreme uncertainties face the region, in having to address both the continuing threats of protest and slower movement on political economy reforms, at the same time as facing a real crisis in the euro area," the bank's report said. Economic output across the Middle East is forecast to rise 2.3 per cent this year.

What is more, many emerging markets that so far have largely shrugged off the impact of the global economic slump, such as Brazil and India, are now more at risk from the effects of the euro zone's debt crisis than they were at the peak of the financial crisis and could be forced to slash spending if market conditions deteriorate, the report added.

Oil-exporting Middle Eastern states, which have dug deep to fund social investments to stave off social unrest and to support neighbouring countries, had placed themselves in a precarious position, the World Bank warned.

The region reaped a windfall from higher crude prices, with hydrocarbon revenue of US$785 billion (Dh2.8 trillion) last year representing an increase of $200bn from 2010.

Crude oil remained above $100 per barrel throughout last year, with lost production of high-quality Libyan crude sending Brent futures to a high of $126.74 per barrel during Libya's six-month civil war.

"Fiscal vulnerability has increased as a consequence of the substantial build-up in spending packages implemented in the last three years," the report said. "In particular, the fiscal break-even oil price - price levels that ensure that fiscal accounts are in balance at a given level of spending - has been trending up for most countries, and are gradually approaching the spot market price," the report said.

On Tuesday, Ali Al Naimi, Saudi Arabia's oil minister, indicated that the kingdom was seeking to maintain oil prices above historic levels.

"If we were able as producers and consumers to average $100, I think the world economy would be in better shape," he told CNN. "Our wish and hope is we can stabilise this oil price and keep it at a level around $100."

Gulf states have implemented spending programmes ranging from plans to build 500,000 newhouses in Saudi Arabia to salary increases for nationals in Qatar and the UAE.

Investment from the Gulf in neighbouring countries is also expected to fall, with foreign direct investment in developing Middle Eastern countries plunging nearly 40 per cent last year.

Official aid from governments in Gulf states has helped countries to meet fiscal shortfalls, but investor confidence in post-revolution Middle Eastern countries would require rebuilding, the report said.

Countries where revolution has overthrown governments - Egypt, Tunisia and Libya - are expected to require "extensive" external financing this year, which the IMF estimates at about $50bn.

Iraq is expected to lead the region for economic growth with a projected 12.6 per cent increase in output, while recessions that began last year in Syria and Yemen are forecast to continue.

Qatar and the UAE were not included in the World Bank's forecasts, with the bank citing insufficient data from the two countries.

 

ghunter@thenational.ae