Gulf Cooperation Council (GCC) countries will see their economies shrink by 7.6% this year, an International Monetary Fund official said on Tuesday, revising downwards April forecasts of nearly 3%.
IMF’s Gloomy estimates predict economic contraction
The new projection for the six-nation Gulf Cooperation Council (GCC) is dramatically worse than the 2.7 percent contraction the IMF forecast just two months ago.
Oil revenues in the GCC, the Gulf Arab monarchies that supply nearly a fifth of the world’s crude, are also expected to decline by $200 billion in 2020, said Jihad Azour, director of the IMF’s Middle East and Central Asia Department.
Read more: Gulf wealth: All that glitters is not gold
“The oil sector will shrink sharply by around 7.0 percent and it will be accompanied by a drop in the non-oil sector also,” he said in a webinar on the prospects for a post-coronavirus recovery in the region.
All is not lost, but saving requires planning moving forward
Azour, however, predicted a faster rebound in 2021 as Gulf economies grow by 2.5 percent — “a full 10 percent turnaround”.
The GCC comprises regional powerhouse Saudi Arabia and the United Arab Emirates along with Bahrain, Kuwait, Oman and Qatar. Azour said that oil prices in real terms (adjusted for inflation) dropped to their lowest level since 1973 earlier this year before recovering partially following a deal among major exporters to slash production.
The IMF last week kept its projections for Brent oil prices unchanged at around $36 a barrel, almost half of last year’s average.
Azour said the sharp drop in oil prices and the impact of the pandemic would lead to more debt in GCC economies, a problem he warned must be tackled.
While most nations in the region have rolled out packages last month to support their economies, the focus is largely on monetary and off-budget measures such as relief on loan or tax payments for businesses in distress or liquidity provision.
Saudi Arabia has also announced 50 billion riyals ($13.3 billion) in budget spending reductions. Oman plans to lower spending by 5% and has instructed state-owned companies to reduce current expenditure by 10% and pause capital outlays.
Economic contraction on all fronts faced by Gulf economies
In its World Economic Outlook released last week, the IMF projected the Saudi economy, the largest in the region, would shrink by 6.8 percent — the lowest growth in more than three decades.
Ahmed al-Kholifey, governor of the kingdom’s central bank, the Saudi Arabian Monetary Authority, downplayed the projection as too gloomy. “We see the IMF forecast as more pessimistic than our projections or even the (experts’) consensus,” Kholifey told the virtual forum, although he declined to provide figures.
Kholifey said SAMA was encouraging commercial banks to lend more to support businesses during the downturn and that banking indicators were reassuring, with banks’ coverage for loans at over 140% in the banking sector.
In a “worst-case scenario”, he said, non-performing loans would not exceed 4% of total loans this year.
Saudi Arabia’s General Authority of Statistics published figures on Tuesday showing that the kingdom’s economy shrank by 1.0 percent in the first quarter. But Kholifey acknowledged that the second-quarter performance would be weaker.
Bahrain – one of the smallest Gulf producers – expects its economy to shrink in line with IMF forecasts, said Central Bank Governor Rasheed Mohammed al-Maraj. The IMF in April had projected Bahrain’s economy to contract by 3.6% this year.
In the neighbouring UAE, Dubai said Tuesday that its GDP had declined by 3.5 percent in the first quarter of 2020 compared to the same period in 2019. The emirate’s official media office said however that its troubled real estate activity had registered 3.7 percent growth.
AFP with additional input by GVS News Desk
Will the Gulf countries be able to tackle this dilemma and recover? Share your view with us in the comments bar below