Why do the IMF and PwC have faith in Saudi, UAE economic growth?
Two positive statements fuelled optimism about the global and regional economies as business leaders gathered on the Swiss mountain resort of Davos.
The first is a survey by PwC, whereby 52% of respondents from the Middle East said they are positive that the worldwide and regional economic picture will improve in 2018.
The second positive stance comes from the International Monetary fund (IMF) which expects growth in the Middle East to pick up in the next two years.
What is the reason behind this optimism and what will be the main drivers for growth in the economies of the region?
Oil Production cuts
A recent study by the Saudi Gazette reveals that with oil production cuts likely to be maintained through 2018, and reversed in 2019, GDP growth is forecasted to pick up to around 4% in both the GCC and wider Middle East.
Recently, during an OPEC meeting in Oman, it was decided that the oil cartel sought and received commitments to continue with 1.8 million bpd cuts till end 2018, but a June 2018 review could alter that view as crude prices surge beyond their current $70 mark.
According to AFP, the IMF raised its growth projection for Saudi to 1.6% in 2018, up 0.5% from October estimates.
A recent study by the Saudi Gazette attributes this growth to a gradual easing in social restrictions in the kingdom.
“2018 will be a key year of transition for Saudi Arabia in several contexts. For the first time, Saudi citizens will pay VAT on the goods and services they buy, Saudi women will be permitted to drive, and private (and foreign) investors may be able to take a stake in Saudi Aramco,” it said.
“Saudi Arabia is at the start of a potentially decades-long process of economic diversification and social change.”
AFP also said Riyadh has restricted spending and aimed at supporting private sector growth while raising the prices of fuel and power, and charging levies on foreign workers.
Meanwhile, Maurice Obstfeld, the IMF’s economic counselor and director of research, told Arab News that Saudi reforms won’t be that quick to take place as expected by the IMF.
“In the case of Saudi Arabia, we are talking about a strategy to reduce public sector influence by 2030, so it is just too soon for those measures to have a significant effect on our forecasts,” he said on the sidelines of the World Economic Forum annual meeting in Davos.
Private sector growth for UAE
In October, the IMF projected the UAE economy to grow by 3.4% in 2018 while UAE’s ministry of economy estimated it at 3.9%.
Abdullah Al Saleh, Undersecretary for Foreign Trade at the Ministry of Economy, announced recently that government investment in infrastructure projects and growth in foreign trade would spur GDP growth in 2018.
IMF attributes the UAE GDP growth to strong improvement in non-oil sector growth.
“Economic diversification efforts of the UAE led by both Dubai and Abu Dhabi and some of the efforts at structural reforms are getting reflected in economic growth outlook of the UAE next year,” Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, was quoted as saying.
“In Dubai, you have investment in Expo 2020, and there is investment in infrastructure in Abu Dhabi,” he said. “Those factors are allowing those cities to grow.”
Egypt’s reform program fuels growth
Egypt Today quotes the IMF raising its forecast for Egypt’s economic growth to 5.5% in the next fiscal year 2018/19, up from 5.3% in the first review.
Media reports state that growth will be spurred by the economic reform program adopted by Egyptian authorities in 2016.
“Consequently, in the period between September 2016 and December 2017, authorities introduced the VAT, a free-floating currency, reduced energy subsidies twice, raised interest rates to curb the soaring inflation, and went on a borrowing spree from the International Monetary Fund (IMF), the World Bank, China, and others to finance its ambitious programme,” it said.
Alaa Ezz, secretary general of the Federation of Egyptian Chambers of Commerce (FEDCOC) was quoted as saying that growth rate will reach about 5-5.5% in 2018 with infrastructure, services, and tourism sectors being the main drivers behind such growth.