Regional governments could face a US$175 billion hole in their fiscal surpluses from falling oil prices, according to IMF projections.
The IMF believes that lower oil prices could knock nearly 1 percentage point off economic growth rates in GCC countries, putting new fiscal pressure on policymakers in the region to reduce spending plans.
At the launch of the IMF’s regional economic outlook in Dubai, Masood Ahmed, the IMF’s Middle East director, said if oil prices hit $75 per barrel for a prolonged period it would knock 8 basis points off the GDP of Arabian Gulf countries, and could reduce the aggregate fiscal surplus for GCC government from a current projected $275bn to around $100bn.
The IMF also warned that Saudi Arabia could suffer a budget deficit as early as next year if oil continued to fall and public spending continued at current levels. The IMF previously forecast the kingdom’s public finances would be in the black until 2018.
If the oil price remains low, it would increase pressure on all regional budgets to cut public spending and curb subsidies on energy, utilities and other areas where consumers’ costs are partly met by the state.
Mr Ahmed said that the UAE was less subsidised than many other regional economies, but believed that Emirati authorities would also consider reducing subsidies. He and his team are in the UAE for a week of meetings with UAE officials.
"The GCC oil-exporting countries have the resources to continue with their spending plans next year, because they have the financial buffer provided by previous oil revenues. But there is a growing discussion about the need to address energy prices in the region because of the fiscal effect of subsidies and the growing levels of energy consumption, which are among the highest in the world," he said.
For the Middle East and North Africa region as a whole, the IMF is expecting GDP growth to rise from the current year’s 2.6 to 3.8 per cent, but Mr Ahmed said that forecast was put at risk by the deepening of regional conflicts, and the “rapid decline” in oil prices.
The IMF published bi-annual outlook document was prepared before recent falls in global oil prices. Goldman Sachs, the US investment bank, yesterday cut its forecasts for oil, setting a new target of $85 per barrel for Brent in the first quarter of 2015, down from a previous forecast of $100, and possibly at $75 in the course of the year. Other experts, such as Standard Chartered bank, are not so bearish, while officials in the biggest producer, Saudi Arabia, said recent falls were “temporary”.
Without the effect of falling oil, Mr Ahmed said that GCC economies would grow at 4.5 per cent next year, driven by non-oil sectors and supported by increased government spending and private sector credit expansion.
He said that growth in oil-importing countries in the Mena region would be “modest and lacklustre”, as the international environment and regional conflicts continue to weigh on economies.
“That growth rate is not high enough to make a dent in unemployment, which is the biggest challenge the region faces. Growth needs to be in the region of 8 per cent to have any effect on unemployment.” Growth would continue to be affected by what Mr Ahmed called “social and security transitions”.
The IMF said that despite progress on fiscal consolidation, public finance deficits and debt levels in oil- importing countries were still high.
On the UAE property market. Mr Ahmed said the IMF was less concerned than it had been a year ago when prices were rising fast, especially in Dubai. “For the last few months the pace of price increases has moderated quite a lot and credit goes to the government for its macroprudential measures on mortgages, loan-to-value levels and transaction-fee increases.”
The IMF estimates that Dubai public sector debt stands at $140bn, but that does not take into account recent payments made by Dubai World and Nakheel. The IMF is recalculating its estimate of Dubai debt in the light of these and other debt measures.
Mr Ahmed said that resources were available “in the rest of the world” to help fund Dubai’s latest rapid round of expansion ahead of the Expo 2020, but he said such projects had to be carefully managed and segmented to avoid the problems of “major expansions in the past in the UAE and Dubai”.
He said: “I would not encourage excessive risk-taking by government-related enterprises, and would urge a degree of coordination and oversight across projects.”
fkane@thenational.ae
Follow The National's Business section on Twitter
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
Tips for job-seekers
- Do not submit your application through the Easy Apply button on LinkedIn. Employers receive between 600 and 800 replies for each job advert on the platform. If you are the right fit for a job, connect to a relevant person in the company on LinkedIn and send them a direct message.
- Make sure you are an exact fit for the job advertised. If you are an HR manager with five years’ experience in retail and the job requires a similar candidate with five years’ experience in consumer, you should apply. But if you have no experience in HR, do not apply for the job.
David Mackenzie, founder of recruitment agency Mackenzie Jones Middle East
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Sri Lanka's T20I squad
Thisara Perera (captain), Dilshan Munaweera, Danushka Gunathilaka, Sadeera Samarawickrama, Ashan Priyanjan, Mahela Udawatte, Dasun Shanaka, Sachith Pathirana, Vikum Sanjaya, Lahiru Gamage, Seekkuge Prasanna, Vishwa Fernando, Isuru Udana, Jeffrey Vandersay and Chathuranga de Silva.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
