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
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How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
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Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
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Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
Gulf for Good raises funds for partner charity projects through challenges, like climbing Kilimanjaro and cycling through Thailand. This year’s projects are in partnership with Street Child Nepal, Larchfield Kids, the Foundation for African Empowerment and SOS Children's Villages. Since 2001, the organisation has raised more than $3.5 million (Dh12.8m) in support of over 50 children’s charities.
Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).
The story in numbers
18
This is how many recognised sects Lebanon is home to, along with about four million citizens
450,000
More than this many Palestinian refugees are registered with UNRWA in Lebanon, with about 45 per cent of them living in the country’s 12 refugee camps
1.5 million
There are just under 1 million Syrian refugees registered with the UN, although the government puts the figure upwards of 1.5m
73
The percentage of stateless people in Lebanon, who are not of Palestinian origin, born to a Lebanese mother, according to a 2012-2013 study by human rights organisation Frontiers Ruwad Association
18,000
The number of marriages recorded between Lebanese women and foreigners between the years 1995 and 2008, according to a 2009 study backed by the UN Development Programme
77,400
The number of people believed to be affected by the current nationality law, according to the 2009 UN study
4,926
This is how many Lebanese-Palestinian households there were in Lebanon in 2016, according to a census by the Lebanese-Palestinian dialogue committee
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
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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
Off-roading in the UAE: How to checklist
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Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
