middle east and central asia regional economic outlook ...€¦ · 1/22/2015 3 the slump in oil...

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Middle East and Central Asia Regional Economic Outlook

Learning To Live With Cheaper Oil Amid Weaker Demand

January 2015 Update

Outline

Recent Global Developments and Implications for the RegionRecent Global Developments and Implications for the Region

Middle East and North Africa (MENAP): Oil ExportersMiddle East and North Africa (MENAP): Oil Exporters

MENAP: Oil ImportersMENAP: Oil Importers

Caucasus and Central Asia (CCA)Caucasus and Central Asia (CCA)

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Outline





Three global factors have significantly affected the regional outlook since last October

Sharp drop in oil prices

Conflicts Transitions

4

Weaker-than-expected external

demand growth

Significant movements in key exchange

rates

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The slump in oil prices is the most important change for oil exporters

130130

Commodity Prices

50

60

70

80

90

100

110

120

50

70

90

110

Brent (U.S. dollars per barrel)Metals price index (RHS)

5

30

40

50

30

50

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

Metals price index (RHS)1/14/2015

Sources: IMF, WEO Global Assumptions; and Bloomberg, L.P.

Weaker growth in the euro area and Russia weigh on MENAP and CCA exports and remittances

World U.S. Euro Emerging China RussiaArea markets

2014 3.3 2.4 0.9 4.4 7.4 0.6

2015 3.5 3.6 1.2 4.3 6.8 -3.0

Revision from Fall 2014

-0.3 0.5 -0.2 -0.6 -0.3 -3.5

6

Sources: National authorities; and IMF staff calculations.

2016 3.7 3.3 1.5 4.7 6.3 -1.0

Revision from Fall 2014

-0.3 0.3 -0.3 -0.5 -0.5 -2.5

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Real exchange rates have appreciated in MENAP and CCA

Real Effective Exchange Rate(Index, January 2013=100)

115

95

100

105

110U.S. Dollar Russian Ruble CCAOE CCAOI

GCC Non-GCC MENAPOI

7

Source: IMF INS database.

85

90

2013M1 2013M5 2013M9 2014M1 2014M5 2014M9

The regional outlook has weakened mainly because of lower oil prices and spillovers from Russia

Middle East and North Africa Caucasus and Central Asia

Total Oil Exporters Oil Importers Total Oil Exporters Oil Importers

2014 2.8 2.7 3.0 5.2 5.2 4.7

2015 3.3 3.0 3.9 4.9 4.9 4.4

Revision from Fall 2014 -0.6 -0.9 0.0 -0.7 -0.8 -0.4

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2016 3.9 3.7 4.5 5.4 5.5 4.7

Revision from Fall 2014 -0.5 -0.9 0.2 0.1 0.1 -0.2

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Outline





A large decline in oil prices will lead to substantial losses in export revenues in MENAP oil exporters

Libya

Net Oil Exports, 2015 (Percent of Total Exports)

$50Kuwait

Oil Export Revenue Losses, 2015(Bars are losses in percent of GDP; adjacent

numbers are losses in USD bn)

Bahrain

Iran

Oman

Saudi Arabia

Qatar

Kuwait

Algeria

Iraq

$3

$20

$47

$138

$10

$15

$46

$44

Bahrain

Algeria

UAE

Saudi Arabia

Libya

Oman

Iraq

Qatar

GCC: $300 bil. 21 pp of GDP

10


0 20 40 60 80 100

Yemen

UAE

Bahrain

$0.4

$16

$3

0 10 20 30 40 50

Yemen

Iran

BahrainNon-GCC: $90 bil. 10 pp of GDP

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Most MENAP oil exporters need oil prices above $60 to cover government spending

Fiscal Breakeven Prices, 2015(U.S. dollars per barrel)

160

180

60

80

100

120

140

160GCC Non-GCC

January 2015 REO Update Baseline for 2015: $57

11


0

20

40

Kuwait Qatar Iraq UAE Saudi Arabia

Oman Bahrain Iran Algeria Libya Yemen

Fiscal Balances, 2014 and 2015(Percent of GDP)

Most MENAP oil exporters have significant buffers that allow them to avoid sharp cuts in gov. spending

30

-40

-30

-20

-10

0

10

20 2014

2015

12


-50

-40

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The impact of lower oil prices on growth will be contained over the near term in most countries

16 October2014REOCurrent Baseline

Real GDP Growth, 2015(Percent)

2

4

6

8

10

12

14 CurrentBaseline

GCC: 3.4% (3.6% in 2014), -1 pp revision Non-GCC: 2.4% (1.5% in 2014) -0.7 pp revision

13

0

2


To the extent that the shock persists, a larger fiscal adjustment will be needed over the medium term

Fiscal Balance, MENAP Oil Exporters, 2012-19(Percent of GDP)

20

0

5

10

15GCC - Current Baseline

GCC - October 2014 REO

Non-GCC - Current Baseline

Non-GCC - October 2014 REO

14


-10

-5

2012 2013 2014 2015 2016 2017 2018 2019

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Energy prices remain significantly below international levels

Fuel Subsidies, 2015¹(Percent of GDP)

5

1

2

3

4

15

0

Iran Saudi ArabiaLibya Algeria Iraq Kuwait Bahrain Oman Yemen Qatar UAE

Sources: National authorities; and IMF staff estimates.¹Size of subsidy bill is estimated using 2013 data. Calculations are based on a price-gap analysis following IMF Board paper (SM/13/29) and MCD departmental paper (14/3).

Policy Implications for MENAP Oil Exporters

• The recent slide in oil prices has accelerated the weakening of fiscal and current account positions.

I th h t t i il bl b ff d fi i t• In the short run, countries can use available buffers and financing to avoid sharp cuts in spending and limit impact on nonoil growth.

• The ensure intergenerational equity and rebuild buffers, countries need to put in place medium-term fiscal consolidation plans: slowing growth of current spending (wage bills and energy subsidies), prioritizing capital expenditures, and raising nonoil revenues.

• Diversification needs to support fiscal consolidation, aiming for the private sector to replace oil and government spending as the key drivers of the economy.

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Outline





External Windfall Gains From Lower Oil Prices¹

Lower oil prices provide a welcome relief to MENAP oil importers

255

External Gains From Lower Oil Prices (Percent of GDP)

Net Oil Imports (Percent of Total Imports) - RHS

0

5

10

15

20

0

1

2

3

4

MENAP: $16 billion or 1½ pp of GDP

18

¹External gains from lower oil prices are calculated as the projected difference in the U.S. dollar value of net oil exports in 2015, using the 2015 oil price assumptions in the January 2015 REO Update and the October 2014 REO, and the volume of net oil exports in the October 2014 REO, with adjustments for idiosyncratic country-specific factors.

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Lower oil prices reduce subsidy bills

Impact of Lower Oil Prices on Pre-tax Fuel Subsidies, 2015¹(Percent of GDP)

2

4

6

BeforeOilPriceFall

AfterOilPriceFall

19

0Egypt Tunisia Sudan

Sources: Authorities; and staff estimates.¹Size of subsidy bill is estimated using 2013 data. Calculations are based on a price-gap analysis following IMF Board paper (SM/13/29) and MCD departmental paper (14/3).

Weaker demand and non-oil commodity price declines offset gains from lower oil prices for growth

Shares of Remittance Inflows from Europe and GCC(Percent) 80

Share of Exports to Europe(Percent, period averages)

100

40

601998-2002

2007-11

40

60

80

100GCCEurope

2005 2012

20

Sources: World Bank; and IMF staff calculations.

0

20

Maghreb Mashreq

Sources: UN, Comtrade; and IMF staff calculations.

0

20

Maghreb Mashreq

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External Gains from Lower Oil Prices and Revisions in Fiscal and Current Account Balances

(Percent of GDP, revision between October 2014 REO and January 2015 REO Update)

Windfall gains are expected to be mostly saved

1.6

1.0

0.10

1

2

External windfall¹ Change in current account balance Change in fiscal balance

21

Sources: National authorities; and IMF staff calculations.¹Based on 2015 oil price assumptions of $57.00 (January 2015 WEO update) compared to $99.36 (October 2014 WEO).

-1MENAP Oil Importers

External windfall Change in current account balance Change in fiscal balance

Policy Implications for MENAP Oil Importers

• The positive effect of lower oil prices on growth will be offset by concurrent adverse domestic and external shocks.

• Where fiscal sustainability is a concern windfall gains should be• Where fiscal sustainability is a concern, windfall gains should be saved to strengthen buffers and reduce public debt.

• Given uncertainty about persistence of the oil price shock and implications for financing, countries should avoid entering into irreversible spending commitments.

• Lower oil prices create favorable conditions for continuing subsidy reforms and stepping up structural reforms to raise potential growth and make it more inclusive.

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Outline





Oil Importers: External Gains from Lower Oil Prices, 2015

Oil Exporters: External Losses from Lower Oil Prices, 2015

Lower oil prices will have the opposite effects on CCA oil exporters and importers

-12

-10

-8

-6

-4

-2

0

1

2

3

24


-16

-14

Azerbaijan Kazakhstan Turkmenistan0

Armenia Georgia Kyrgyz Republic

Tajikistan

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100

CCA Oil Exporters: Fiscal Breakeven Prices, 2015(U.S. dollars per barrel)

CCA oil exporters also need prices above $60 to balance their budgets

30

40

50

60

70

80

90

January 2015 REO Update Baseline for 2015 $57¹

25

0

10

20

30

Turkmenistan Kazakhstan Azerbaijan

Sources: National authorities; and IMF staff calculations.¹APSP oil prices.

Shares of Remittance Inflows by Remitting Region(Percent)

Share of Non-oil Exports by Destination(Percent, period averages)

Large spillovers from Russia because of close linkages through remittances, exports and FDI

40

60

80

100Russia Europe

2005 2012

40

60

80

100Russia Europe

98-02 07-11

(Percent) (Percent, period averages)

26

0

20

CCAOE CCAOI

Sources: World Bank; and IMF staff calculations.

0

20

CCAOE CCAOI

Sources: UN, Comtrade; and IMF staff calculations.

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ARM KAZ GEO UZB KGZ RUS (RHS)

Exchange Rate Index(National currency per USD, indexed to Jan 1, 2014)

CCA currencies have come under pressure in tandem with the ruble

100

150

200

250

105

110

115

120

125

130

135

140

( )

27

0

50

90

95

100

105

1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/2014 11/1/2014 1/1/2015

Sources: Bloomberg; and IMF staff calculations.

Real GDP Growth(Percent)

8

CCA Oil Exporters

Twin shocks of Russia’s recession and lower oil prices have weakened the CCA outlook

4

5

6

7

p

CCA Oil Importers

28


3

4

2011 2012 2013 2014 2015 2016 2017 2018

Jan-15 Spring 2014 Jan-15 Spring 2014

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In the Short Run:• Faced with adverse spillovers from Russia, countries should implement

countercyclical fiscal policy if fiscal space allows and financing is available.

Policy Implications for CCA countries

• Increased exchange rate flexibility would facilitate adjustment of economies to adverse shocks.

• Tightening of monetary policy would help address signs of inflationary pressures and help limit exchange rate pressures.

Over the Medium Term:• Oil exporters would need to reassess medium term spending plans to the

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• Oil exporters would need to reassess medium-term spending plans to the extent that the oil price decline is persistent. Oil importers should resume fiscal consolidation to rebuild buffers as soon as cyclical conditions allow.

• Stepped up structural reform efforts are needed to diversify economies and improve the business climate.

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middle east and central asia regional economic outlook ...€¦ · 1/22/2015 3 the slump in oil...

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