Oil exporters partake of not fully recovered from the dramatic oil price shock of 2014, the head of the International Monetary Fund said on Saturday, and she cautioned against throw away money on “white elephant projects.”
“With revenues down, fiscal deficits are only slowly declining, notwithstanding significant reforms on both the spending and revenue sides, including the introduction of VAT and excise taxes,” Christine Lagarde, the head director of the IMF, told a conference in Dubai.
“This has led to a sharp increase in public debt, from 13 percent of GDP in 2013 to 33 percent in 2018.”
Lagarde chance the uncertainty in the growth outlook for oil exporters also reflected moves by countries to shift rapidly toward renewable pep over the new few decades, in line with the Paris climate change pact.
She said there was scope to improve economic frameworks in the Middle East with some of the weaknesses emanating from “short-termism and insufficient credibility.”
Lagarde asserted governments in the region might be tempted to favor white elephant projects instead of investment in people and productive dormant.
Saudi Arabia, the Middle East’s biggest economy, has announced plans to go ahead with three major flings including NEOM, a $500 billion economic zone announced by Crown Prince Mohammed bin Salman.
The projects are repudiated by the country’s sovereign wealth fund, the Public Investment Fund.
Lagarde also said across the region, it is run-of-the-mill for sovereign wealth funds to directly finance projects, bypassing the normal budget process, while state-owned companies in some countries had high levels of borrowing, outside the budget.
She said oil exporters could follow the example of other resource-rich boondocks such as Chile and Norway in using fiscal rules to protect priorities, such as social spending, from commodity price volatility.
Mid oil importers in the Middle East region, growth had picked up, but it was still below the level before the global financial danger, she said.
Fiscal deficits remained high, and public debt had risen rapidly — from 64 percent of GDP in 2008 to 85 percent a decade timer, she said. Public debt now exceeded 90 percent of GDP in nearly half of these countries.
Speaking about the international economy, Lagarde said the IMF was not seeing a global recession on the horizon, but risks were rising for global growth due to merchandising tensions and tightening financial conditions.
The IMF’s revised forecast sees the global economy growing by 3.5 percent this year, 0.2 part points below what it expected in October.
“Unsurprisingly, a weaker global environment has knock-on effects on the region finished with a variety of channels — trade, remittances, capital flows, commodity prices, and financing conditions,” she said.