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Gulf Economies Can Survive Plummeting Oil Prices, says IMF

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The IMF is confident that GCC economies can survive continued low oil prices by reducing state spending and increasing government revenues.

The International Monetary Fund (IMF) is confident that GCC economies can make the adjustments needed to cope with continuing low oil prices, but only by reducing state spending and increasing government revenues, said IMF Managing Director Christine Lagarde last week.

Speaking to a conference of Arab economic officials, Lagarde, recently given a new five-year term as IMF chief, said: “Oil prices have fallen by two-thirds from their most recent peak but supply and demand-side factors suggest they are likely to stay low for an extended period. The size and likely persistence of this external shock means that all oil exporters will have to adjust by reducing spending and increasing revenue.” However, she was cautiously optimistic, arguing that most of the GCC countries have the scope to pace their adjustment over several years and limit the impact on growth.

Oil prices have plummeted from their summer 2014 highs of $115 a barrel to the low $30s. Lagarde argues that the oil-reliant Gulf States’ ability to survive the drop will rely on greater taxation and fiscal reforms. She called for the introduction of value-added tax, “ideally a harmonized regional VAT”, commenting that “even at a low single-digit rate, such a tax could raise up to 2% of GDP”. She also called for a greater weight on corporate and personal income and property and excise taxes to increase revenues, as well as bringing energy subsidies to an end. She also called for the diversification of the economy away from oil, for example by adding incentives for entrepreneurship and boosting private sector employment.

IMF cuts economic growth forecasts

Lagarde’s comments follow the IMF’s Regional Economic Outlook report of the MENA economies, which was a brutal assessment of the slowing growth and effect of low oil prices on the region. The IMF has also cut economic growth forecasts for the oil-exporting Gulf States to 3.4% this year, as it reports that last year MENA oil exporters as a whole lost more than $340 billion of revenues (equivalent to 20% of their combined gross domestic product).

While Kuwait, Qatar, and the United Arab Emirates have strong enough fiscal buffers to last for twenty years, Oman, Algeria, Saudi Arabia, Bahrain, Libya, and Yemen are in a worrying situation, with only five years of fiscal buffers left. Masood Ahmed, the IMF’s regional director, comments: “GCC countries have sizeable buffers — most of them can finance substantial deficits for four to five years. But will they want to use buffers … to continue running large deficits?”

But it is not all bad news. The share of GDP of the non-oil sector is rising, up by 12% to 70% between 2000 and 2013 in the GCC countries as the UAE, Kuwait, Qatar, Bahrain, Saudi Arabia, and Oman all put in place strategies to promote non-oil trade, attract more foreign direct investment, and begin to lift subsidies.

Diversified economy in the UAE



The UAE has one of the most diversified economies in the region. Non-hydrocarbon revenues account for 75% of GDP and 80% of total export revenues. Retail and real estate sectors are showing strong growth driven by wealthy ex-pat domestic demand. And tourism, encouraged by the country’s position as a safe haven, is expected to grow further with Dubai Expo 2020.

The food and beverage sector is also looking strong. The UAE has invested $1.4 billion in the food processing industry since 1994, and it continues to expand the halal food segment which is projected to grow to $1.6 trillion by 2018.

Bahrain and Kuwait implement painful reforms under the cover of the IMF

IMF recommendations are also making it easier for some governments to implement painful reforms and cuts which could lower their citizens’ living standards. Bahrain has planned a series of austerity cuts under the cover of IMF recommendations, introducing VAT, cutting spending on social transfers, removing domestic subsidies for meat and cutting them for gasoline, and freezing public-sector wages. The country is also trying to boost revenues from tourism, light manufacturing, and services industries.

Finance Minister Sheikh Ahmed bin Mohammed al-Khalifa said: “Bahrain’s Government Action Plan, currently underway, includes wide-ranging measures that will ensure the sustainability of Bahrain’s financial resources and development, benefiting the entire country”.

The IMF is also playing an increasingly important role in Kuwait, where it has helped the government design a broad-based tax system, and introduce VAT and a business profit tax.

Oman aims to be a logistics hub for the region

Oman is traditionally dependent on oil to fund its national budget, currently accounting for 77%. But in 2015, sales fell 35%. And while Oman’s leaders have been discussing the diversification of the economy since the 1990s, it has always been put off for a later date, and today the country has almost no manufacturing or agricultural production.

However, the country does now have plans to develop manufacturing, transportation, and tourism sectors. And the government is building a huge port at Duqm, on Oman’s central coast, in an attempt to become a logistics hub for the region. This would provide an alternative shipping route for oil exports from Iran or Iraq as well as for manufactured goods. Good plans, but now we need to see some action.

Saudi Arabia searching for diversification

Saudi Arabia is similarly reliant on the oil sector, currently accounting for 85% of its budget revenues. And although finances are buffered by huge reserves of foreign currency, they can only last so long if the government continues to sell them at speed to finance spending and its fight with US oil producers. Benefitting from a surplus of 6.5% of GDP in 2013, by 2014 that figure was a deficit of 2.3%. And the struggle looks set to grow in importance over the coming years as the number of working-age Saudis is predicted to hit 4.5 million by 2030.

As part of its diversification program, the government plans to invest in transport infrastructure, energy, utilities, and housing. The Kingdom’s Unified Investment Plan also seeks to boost investment and further investment in education to improve the Kingdom’s competitiveness. A McKinsey study has also highlighted eight sectors with potential — mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, health care, finance, and construction. It believes that investment in these areas will enable Saudi Arabia to double its GDP and create as many as six million new jobs by 2030.

Qatar sees impressive economic expansion

In Qatar, economic diversification of the non-hydrocarbon sector, particularly focused on manufacturing, chemicals, and services, is estimated to have grown 11.3% in 2014. As Lagarde commented last November: “A non-oil GDP growth of more than 10% is impressive.” Qatar has also announced plans to scale up petrochemical production, and private sector credit growth is being driven by growing construction and real estate.

Driven by higher investment spending — $182 billion was earmarked for new project implementation over five years from 2014 — and population growth, the Qatar National Bank expects the country’s economic growth to reach a significant 7.8% in 2016, up from 6.8% in 2015. Non-hydrocarbons contributed 62% of the country’s GDP in 2014. And Qatar’s policy to diversify its oil economy received praise from the IMF, with Lagarde commenting: “as far as Qatar, there have been solid and strong policy measures to diversify the economy.”

Let’s hope that the other GCC countries can successfully emulate Qatar’s economic success.

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IMF reviews Zimbabwe economy, eyes first new financing since 1999

Comments (0) Africa, Latest Updates from Reuters, Politics

HARARE (Reuters) – The International Monetary Fund (IMF) has started talks with Zimbabwe’s government to review its economic performance, stepping up engagement as Harare seeks a financial aid package after years of isolation.

President Robert Mugabe’s government started defaulting on debts to the IMF, World Bank, African Development Bank and several Western lenders in 1999 – leading to a freeze in IMF assistance – and is struggling to emerge from a catastrophic recession that ran for a decade until 2008.

Without balance of payment support or foreign credit, Zimbabwe is running its budget hand-to-mouth, leaving it with virtually no money for infrastructure.

With formal unemployment above 85 percent, Zimbabwe has since December 2013 softened previously sacrosanct policies in the hope of gaining fresh loans. [nL8N12L1Q0]

At the same time, Western countries have eased sanctions imposed over alleged human rights abuses and vote fraud, looking beyond the rule of the 92-year-old Mugabe, Zimbabwe’s sole leader since independence in 1980.

An IMF team met government representatives on Wednesday under the final phase of a Staff Monitoring Programme, Christian Beddies, the IMF representative in Zimbabwe, told Reuters.

The team will also meet central bank officials and local business leaders before March 10.

“The team is also doing the annual Article IV consultation, which is an important ingredient in the re-engagement process,” Beddies said.



Zimbabwe started the SMP – an informal agreement with the IMF to monitor implementation of its economic reforms – in December 2013, and has met its targets.

These include softening provisions of its black empowerment law to attract foreign investment, making it easier for firms to lay off workers, and improving government financial accountability.

A senior treasury official said Zimbabwe hoped to begin negotiations this year on new financial aid, which will require it to tackle difficult reforms such as cutting the state wage bill, 82 percent of the national budget.

A parallel programme to clear $1.8 billion in external arrears would also be undertaken. [nL8N129142]

“We are working on the structure of a new financing programme from the IMF and we will soon present to them a country strategy paper on this and the economic reforms that will support the programme,” said the treasury official, who is involved in discussions with the IMF.

The worst drought since 1992 has left 3 million people facing hunger and Zimbabwe has appealed for nearly $1.6 billion to help pay for grain and other food. [nL8N15O44B]

Zimbabwe says it expects growth of 2.7 percent this year after 1.5 percent in 2015, but the World Bank says the economy will stagnate due to drought and weak commodity prices. [nL8N15I3CV]

Beddies has already said the IMF might resume aid to Zimbabwe this year if foreign creditors accept its plans to clear arrears and implement economic reforms. [nL5N11R2YV]


(By MacDonald Dzirutwe. Editing by James Macharia and Kevin Liffey)

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Tunisia, IMF hold talks on credit, economic reforms

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TUNIS (Reuters) – The IMF began talks with Tunisia on Thursday over a new credit programme, tied to measures to strengthen its economy and finances and likely to be worth at least $1.7 billion over four years, a central bank official told Reuters.

Tunisia’s economy has struggled since the 2011 uprising against autocrat Zine El-Abidine Ben Ali that sparked the Arab Spring revolutions across North Africa. Two attacks last year by Islamist militants hurt its tourism industry.

Protests to demand work last month turned violent, underscoring the fragility of the economic growth that Tunisia needs to underpin its democratic transition.

Amine Mati, the head of the IMF delegation in Tunisia, met the Central Bank Governor Chedli Ayari to discuss the details of the credit programme on Thursday.

“The programme will be in accordance with new economic reforms in Tunisia this year and during the three next years,” an central bank official told Reuters after the meeting.

Mati will also meet the prime minister’s adviser in charge of economic reforms.

Tunisia is about to get a loan of 500 million euros ($550 million) from the European Union to support the economy, and former colonial ruler France last month pledged 1 billion euros in aid over five years.

The new IMF programme will follow on from a two-year deal totalling about $1.74 billion that was agreed in 2013 and extended last year by seven months to buy time for Tunisia to put banking and fiscal reforms in place.

Under the programme, Tunisia also agreed to keep its budget deficit under control and make the foreign exchange market more flexible.


(Reporting by Tarek Amara; Editing by Ruth Pitchford)

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Central African growth hit by low oil price, security threats: IMF

Comments (0) Africa, Business, Latest Updates from Reuters

YAOUNDE (Reuters) – Tighter public spending, economic diversification and greater regional trade are needed to spur growth in central Africa that has been hampered by plunging oil prices and security threats, the head of the International Monetary Fund said on Friday.

Speaking in Cameroon during a regional tour, IMF managing director Christine Lagarde said growth in the resource-rich CEMAC bloc – comprising Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon – slowed in 2015 to around 2 percent and will increase only slightly this year.

“The prolonged slump in oil prices presents a new reality for CEMAC,” Lagarde said. “An adjustment in large scale investment plans may be necessary in the short run, to preserve fiscal viability and debt sustainability in the medium term.”

Oil has dropped from over $100 a barrel in June 2014 due to global oversupply, to around $30 a barrel this week, which provides a challenge for countries in Central Africa whose economies rely largely on exports of oil.

Some have been hit harder than others. Equatorial Guinea experienced a “severe” contraction, Lagarde said, while Cameroon saw some robust growth.

Economies have also been hit by security concerns, particularly from Islamist militant group Boko Haram which has carried out attacks in northern Cameron and elsewhere, disrupting economic activity and diverting spending from social programs to the military.

An “ambitious” reform agenda will be needed to bolster growth, which is estimated at 2 percent for 2015, down from earlier estimates of over 4 percent, Lagarde said on Friday. The bloc’s fiscal deficit is seen to have widened 6.5 percent of GDP in 2015, with only modest improvement expected in 2016.

The block’s growth is expected to hit 3.5 percent in 2016, still far below the growth of previous years.

Lagarde urged CEMAC members to rein in spending to reduce deficits during tough times and increase regional trade. Of all formal trade conducted by CEMAC countries, less than 5 percent involves intra-CEMAC commerce, according to the IMF.


(Reporting By Sylvain Andzongo, writing by Edward McAllister; Editing by Toby Chopra)

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Zambia needs measures to lower deficit, restore confidence: IMF

Comments (0) Africa, Business, Latest Updates from Reuters

LUSAKA (Reuters) – The implementation of measures to lower Zambia’s fiscal deficit will go a long way towards restoring market confidence, the International Monetary Fund said on Friday.

“The pressures on the economy have not only reflected the impact of external shocks but also the waning market confidence,” the IMF said in a statement.

“Fiscal discipline has been undermined by additional spending commitments that stand in contrast to lower-than-budgeted revenues.”


(Reporting by Chris Mfula; Writing by Stella Mapenzauswa; Editng by Joe Brock)

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Malawi to revise national budget after IMF suspends credit facility

Comments (0) Africa, Latest Updates from Reuters, Politics

LILONGWE (Reuters) – The International Monetary Fund has suspended loans to Malawi for failing to cut its wage bill and improve revenue collection, making it less likely Western donors will resume budgetary aid, the finance minister said on Thursday.

This is the second time the Fund has suspended the program within a period of three years. It was halted in 2012 when the Malawi government failed to devalue its currency, the kwacha, and reform public financial management.

“Things are now out of hand because this completely jeopardises our chances of getting back budget support suspended under the Joyce Banda administration,” Finance Minister Goodall Gondwe told Reuters.

Gondwe said the Treasury was already working on revising the $1.5 billion budget, which was passed in July this year.

“We welcome the observations from the IMF and we already planned to reduce the budget by cutting down on total expenditure during the mid-term budget review meeting of parliament in February next year,” he said.

Budget assistance from Western donors worth millions of dollars has been withheld for two years now after revelations of corruption under ex-President Banda. Such aid has historically accounted for about 40 percent of the national budget.

The IMF said the loan facility would remain suspended until Malawi’s government met certain targets.

“The extended credit facility is off-track because Malawi failed to meet set targets by end-June 2015 and we have discussed a number of measures to bring it back on track starting with a revised budget,” said Oral Williams, the IMF mission head to Malawi.

“Fiscal slippages equivalent to about 2 percent of GDP emerged during the second half of the 2014/15 fiscal year, in part because of overspending on the wage bill, and these were exacerbated by revenue and external finance shortfalls.”

Williams said the mission reached an understanding on measures to bring programme back on track, including “a revised fiscal framework sufficient to meet the end December 2015 program target on net domestic financing and a tight monetary stance to maintain positive real interest rates.”

The IMF said Malawi had met targets on net international reserves and net domestic assets.

The IMF said on Wednesday that Malawi’s economic growth would slow to 3 percent this year from 5 percent in 2014, reflecting a decline in the maize harvest and weak private- sector investment and consumption.

Floods in January destroyed more than 60,000 hectares of crop fields cutting output for the staple maize by 27 percent.

(By Mabvuto Banda, Reuters)

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Mali’s economy to slow on softening manufacturing: IMF

Comments (0) Africa, Business, Latest Updates from Reuters

DAKAR (Reuters) – Mali’s economic growth is set to slow this year to 4.9 percent, because of weakening manufacturing output, despite a strong harvest, the International Monetary Fund (IMF) said on Wednesday.

The Fund said in a statement following its annual Article 4 consultation on Mali’s economy that inflation would also remain moderate at around 2.4 percent this year, up from 0.9 percent last year.

“After an unusually strong growth performance in 2014, when the real gross domestic product (GDP) grew by 7.2 percent, growth in 2015 is expected to be around 4.9 percent, in line with its historical trend,” said Christian Josz, IMF mission chief, in a statement.

“The harvest is turning out well, but manufacturing output weakened in 2015,” it said.

The IMF signed a $46.2 million Extended Credit Facility with Mali in December 2013, and it said the programme targets for end-June were met thanks to prudent management of government finances.

Mali, a major exporter of gold and cotton, had been embroiled in a conflict between its government and Tuareg separatists in its north. Although a peace deal was signed in June, mediators have struggled to enforce it.

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Senegal’s growth to accelerate to 6 pct in 2016: IMF

Comments (0) Africa, Business, Latest Updates from Reuters

ABIDJAN (Reuters) – Senegal’s economic growth will accelerate to 6 percent next year, boosted by a government development plan, increasing trade with neighbouring Mali and lower oil prices, the International Monetary Fund (IMF) forecast.

Senegal, one of West Africa’s most stable democracies, has secured billions of dollars in donor support for a development plan that aims to diversify the economy beyond fishing, agriculture and tourism, and double growth over the next decade.

“The economic outlook remains favourable with a rate of growth of above 5 percent in 2015 and of 6 percent in 2016,” Ali Mansoor, who headed a recent IMF mission to Senegal, said in a statement released late on Tuesday.

Inflation, which stood at 0.6 percent in August, is expected to remain low, and the government has set a 2016 fiscal deficit target at 4.2 percent of GDP, the fund noted.

“The mission emphasized that doubling and sustaining growth rates at 7 or 8 percent … will require maintaining a sound macroeconomic framework in addition to accelerating the reforms required to promote private investment,” the statement said.


(Reporting by Joe Bavier; Editing by Jussi Rosendahlm, Reuters)


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