The world’s economy is forecast to grow around 3.6% this year, but Arab oil exporters are seeing a windfall from high energy prices that will buoy their economies and replenish their financial reserves this year and next, according to a report released Wednesday by the International Monetary Fund.
Those hard-hit in the Middle East, however, are oil importers and countries like Egypt that also rely heavily on food imports from the Black Sea region, where Russia’s invasion of Ukraine has impacted exports like sunflower oil, barley and wheat worldwide.
The war has caused wheat prices to soar as farmers in Ukraine were forced to pick up arms, stop farming or have been unable to export their grains due to blocked ports and roads.
Higher energy prices, though, spell fortune for the region’s oil producers, like Saudi Arabia where economic growth is expected to hit 7.6% this year.
Kuwait, another country highly dependent on oil revenue, is forecast to see 8% growth in 2022, a notable reversal from the just 1% growth its economy saw last year and the nearly 9% contraction its economy saw in 2020. The IMF’s figures forecast that Iraq will see the biggest expansion to its economy in the region, with 9.5% growth projected this year.
As a whole, the IMF expects that in the next five years, the level of additional inflows and financial reserves to Mideast oil exporting countries will exceed $1 trillion, Jihad Azour, director of the Middle East and Central Asia department at the IMF, told The Associated Press.
The IMF’s projections are based on a number of assumptions, including that the price of oil will average roughly $107 a barrel in 2022 and trade around $92 a barrel in 2023.
Gulf Arab oil exporting states are projected to produce some 18 million barrels of oil per day this year, with around 14 million barrels of that for export. Most of the barrels will be produced and exported by Saudi Arabia.
Rystad Energy, a research and business intelligence company, says Saudi Arabia will be the largest beneficiary of the higher oil prices and is expected to receive more than $400 billion from its oil and gas exports, an increase of almost $250 billion from 2021. The firm said Iraq follows with about $200 billion, a doubling of its income compared to 2021.
The extra financial inflows are critical to Gulf Arab countries as they try to diversify their economies away from dependence on oil for state spending and as the world seeks greener technologies to power industry.
Saudi Arabia’s King Salman announced this week an over half-billion-dollar package of social security payments to Saudis in need for the holy Muslim month of Ramadan, which ends this week. Individuals will receive $267 and an additional $133 for their dependents.
The kingdom runs a separate “Citizen’s Account” program with around 10 million beneficiaries – close to half of the Saudi population. The program aims to ease financial burdens on citizens and provide support to families with limited incomes. Average support per family totaled $285 in April. Since its inception in early 2017, the program has disbursed $31 billion.
In contrast, countries like Syria and Lebanon are in such dire economic straits that the IMF has no economic projections for either. Syria has been wracked by civil war for more than a decade. Lebanon is mired in political gridlock with its last economic figures recorded by the IMF in 2020 showing a 22% contraction of the economy that year.
The situation is also particularly dire for Sudan, where consumer price inflation is forecast to hit 245% this year. Last year, the figure hit a whopping 359%, skyrocketing since the country’s 2019 revolution.
Egypt, the region’s most populous nation, faces numerous headwinds, though the IMF expects its economy to grow by nearly 6% this year, before dipping close to a percentage point to around 5% growth in 2023.
“Egypt was among the many countries directly affected by the war in Ukraine,” Azour stated.
Higher wheat prices are expected to increase the import bill of Mideast countries by around $9 billion, and between $1 billion and $2 billion for Egypt.
With inflation expected to hit 10.4% this year in Egypt, the government eased exchange rates and the currency depreciated by 15% in recent weeks. It also capped the price of unsubsidized bread to keep costs from soaring.
Egypt has since reached out to the IMF to explore additional funding. Earlier this month, energy heavyweights Saudi Arabia, the United Arab Emirates and Qatar pledged around $22 billion to Egypt to support its struggling economy. Some $5 billion of that were Saudi deposits in Egypt’s central bank. The rest came in the form of investment deals from the UAE and Qatar.
The regional outlook by the IMF comes after the lender released its global forecast earlier this month. It downgraded the outlook for the world economy this year to 3.6% from a projected 4.4% for 2022 in January, blaming Russia’s war in Ukraine for disrupting global commerce, pushing up oil prices, threatening food supplies and increasing uncertainty amid the coronavirus.