Funds accumulated by resource-rich Middle Eastern states during the oil boom are now helping cushion the region from the global economic crisis, the International Monetary Fund said on Wednesday. “Utilizing the buffers accumulated during the boom years, supportive policies are set to cushion the impact of the global crisis,” the IMF said in its six-monthly World Economic Outlook report. Countries such as Kuwait, Libya, Oman, Qatar and Saudi Arabia were helping fill the void left by an ailing private sector with higher government spending, which the IMF said would be “essential for growth in the entire region.” Central banks in countries such as Egypt, Jordan, Kuwait, Saudi Arabia and the United Arab Emirates (UAE) were also reacting appropriately by providing liquidity, cutting reserve requirements and lowering interest rates, the IMF added. The crisis will still have a major impact on the region, the IMF said however, estimating that economic growth would decline from 6.0 percent in 2008 to 2.5 percent in 2009 and warning about the impact of plunging oil prices. The decline in the world economy as a whole would also hit export growth across the region, remittances from Middle Eastern workers abroad and tourism revenues in countries such as Egypt, Jordan and Lebanon, the IMF said. The IMF also pointed out that the effects of the crisis would vary widely, with Qatar's economy set to grow by 18 percent in 2009 because of a doubling in natural gas production while Lebanon and the UAE would be badly hit. The IMF's latest World Economic Outlook, released Wednesday, offers another unwelcome reality check for the volatile region, where officials from the United Arab Emirates to Egypt, Iran to Lebanon have tried to cast a rosy glow on growth prospects. Mideast officials have pointed to prudent fiscal policies and stringent bank lending practices as key safeguards leaving them less exposed than other nations to the US meltdown that sparked the current recession. To a degree, the assurances were sound. Several regional central banks have been proactive, cutting interest rates and injecting liquidity into the financial sector as governments drafted stimulus packages or offered bailouts. Overall, Mideast nations are poised to see growth rates of about 2.5 percent this year, down from 6 percent in 2008, the IMF said. That level is still higher than overall global estimates, with the IMF projecting that world output would decline by 1.3 percent this year. An over 60 percent fall in world oil prices since mid-July has siphoned off a key revenue source. That is despite the Organization of the Petroleum Exporting Countries' efforts to engineer a price rebound. The best the group has achieved is a tentative price floor of between $45 to $50 per barrel as demand continues to decline. Saudi Arabia and most other Gulf Arab nations have been able to stave off the worst of the collapse by tapping into cash surpluses from years past to sustain government spending. Even so, the IMF said the Kingdom's real gross domestic product growth is expected to drop from 4.6 percent in 2008 to -0.9 percent this year before rebounding to 2.9 percent. For Iran, the decline in oil prices has presented a serious challenge. The IMF said that among the oil producers, the UAE is expected to see the sharpest slowdown. Dubai, one of the seven semiautonomous sheikdoms of the UAE, has turned from Arab boomtown to debt-saddled city-state during the crisis. It now faces delays or cancellations of glitzy projects like skyscrapers, plus layoffs in its overwhelmingly expatriate work force. Investors have fled and property prices slumped amid strains on its financial sector. The federal government has stepped in with a bailout. The IMF projects that the UAE's overall growth is expected to drop from 7.4 percent in 2008 to -0.6 in 2009 before rebounding slightly to 1.6 percent next year. Among other Mideast nations, Qatar stood out boasting the strongest growth - 18 percent - because of expanding natural gas production. Lebanon, however, is expected to experience the steepest slowdown because of the cost of servicing debt and a fall in remittances from workers in the Gulf, the report said. Egypt, which lacks significant oil wealth, faces a triple challenge of slumping revenues from tourism, the Suez Canal and worker remittances. The IMF projects the key US ally will see growth halved from 2008 levels of 7.2 percent. Even if Mideast countries weather the crisis this year, significant risks remain, the IMF cautions. A prolonged period of global economic turmoil could prompt oil exporters “to reassess their long-term oil price expectations and, consequently, curtail their infrastructure spending plans and oil production field investment, which would cloud growth prospects for the entire region,” the report said.
