The International Monetary Fund (IMF) said that ”it has engaged closely through financing programs with countries in the region including Jordan, Yemen and Morocco, but additional financing needs remain large”.
The IMF added in a recent report that stronger cooperation with GCC countries who are major financiers for these countries could be of great benefit.
The GCC economies are enjoying high growth, the report said, adding that the combination of historically high oil prices, expanded oil production, expansionary fiscal policies, and low interest rates is supporting buoyant economic activity.
It noted that fiscal and external surpluses are large, inflation is moderate, and prospects for growth remain positive. At the same time, however, the economies remain dependent on hydrocarbon extraction and rising government spending has raised breakeven oil prices, implying heightened vulnerabilities, the IMF added.
Risks to the GCC stemming from exposure to Europe are limited, but the impact via oil demand and prices could be substantial, the report said. It also stressed that a rapid deterioration in the global economy could bring about developments similar to what the region experienced in 2009, including a sharp fall in oil prices and disruptions to capital flows, pointing out that ”although most GCC countries have sufficient savings to cushion even a sizeable shock, a prolonged drop in oil prices could test available buffers”.
The strong baseline outlook for the GCC economies implies diminishing need for near-term policy stimulus, the report indicated, noting that most GCC countries can plan to reduce the growth rate in government spending in the period ahead, which would help prevent any prospect of overheating and also improve long-term fiscal positions. ”with low inflation, the accommodative monetary stance as implied by the region’s currency pegs remains appropriate” the report said.
Given the uncertain global outlook, however, continued emphasis on reducing vulnerabilities will be important alongside greater focus on strengthening the foundations for longer-term growth and diversification, the report said, adding that this includes: reducing fiscal risks and improving the fiscal outlook by containing increases in spending on entitlements that are hard to reverse and instead prioritizing growth-enhancing investments in infrastructure; strengthening fiscal frameworks and institutions; bolstering the financial sector, including through continuing to enhance supervision and macropudential policy frameworks and by deepening domestic debt markets; and advancing private sector job creation for nationals.
In the MENA region, the report said, many countries are going through difficult transitions. Changes of government in Egypt, Libya, Tunisia and Yemen were accompanied by varying degrees of social unrest and associated disruptions to economic activity, and the conflict in Syria has continued to intensify. Social instability and political uncertainties although in several cases having receded in recent months remain substantial, and the near-term growth outlook for the countries in transition is generally subdued.
The medium-term reform agenda necessary to lay the basis for inclusive private sector led growth has yet to be tackled, the report noted.
It added that the already sluggish global recovery has suffered new setbacks and uncertainty weighs heavily on prospects. The euro area crisis intensified in the first half of 2012 and growth has slowed across the globe, reflecting financial market tensions, extensive fiscal tightening in many countries, and high uncertainty about medium-term prospects, the IMF said in its report.
”Activity is forecast to remain tepid and bumpy, with a further escalation of the euro-area crisis or a failure to avoid the “fiscal cliff” in the United States entailing significant downside risk” the report said.
© Jordan News Agency – Petra 2012
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