Middle East countries to get $130m oil windfall, IMF says

Energy-rich Middle Eastern countries will receive up to $1.3 trillion in additional oil revenue over the next four years, according to the International Monetary Fund, as they receive a windfall amid the global financial crisis that will strengthen the region. The firepower of sovereign wealth funds. Asset prices have sold off.

The fund’s forecasts underscore how high energy prices, fueled by Russia’s war in Ukraine, are boosting autocratic monarchies in the Gulf, as much of the rest of the world grapples with soaring inflation and fears of a recession.

Jihad Azour, Director of the International Monetary Fund middle East And North Africa, told the FT that the region’s oil and gas exporters, particularly the Gulf states, “will see an additional cumulative oil revenue of $1.3 trillion by 2026” relative to pre-war expectations in Ukraine.

The bays are some of the largest in the world oil and gas The exporter and several of its largest and most active sovereign wealth funds. These include Saudi Arabia’s Public Investment Fund, Qatar Investment Authority, Abu Dhabi’s investment agencies, including Abu Dhabi Investment Authority, Mubadala and ADQ, and Kuwait Investment Authority.

The $620 billion PIF, chaired by Saudi Crown Prince Mohammed bin Salman, invested more than $7.5 billion in U.S. stocks including Amazon, PayPal and BlackRock in the second quarter as it sought to capitalize on share prices chance of falling. Market filing.

Gulf region sovereign wealth funds have also been active during the coronavirus outbreak as they look to capitalize on market volatility triggered by the pandemic. During the 2009 global financial crisis, they took the opportunity to snap up stakes in troubled Western companies.

In recent years, many funds have been focusing on sectors such as technology, healthcare, life sciences and clean energy as governments pursue investment returns, while also seeking to diversify the economy and develop new industries.

Jihad Azour, Middle East and Central Asia Director, IMF © Karim Sahib/AFP/Getty Images

Azour said it was important for the Gulf countries to use their latest windfall to “invest in the future”, including preparing for the global energy transition.

“It’s a big moment for them . . . accelerating in areas like technology​​​ [domestically] Because that will allow them to be more productive,” he said. “Furthermore, their investment strategies may benefit from improved asset prices for new investors and the ability to increase market share in certain areas is an opportunity. ”

But he added that they must maintain fiscal discipline and reform momentum to reduce states’ reliance on oil.

The health of the Gulf economies has traditionally tracked oil price movements through state spending, with petrodollars being the main driver of business activity. So booms are often followed by recessions.

The wealth comes after years of sluggish growth in the Gulf region that led governments to borrow, draw down reserves and slow state programs.

But Saudi Arabia, the world’s largest oil exporter and the region’s largest economy, has been on a massive spending spree led by the PIF, a fund tasked with developing a series of mega-projects aimed at modernizing the conservative kingdom, while seeking overseas. invest.

The PIF is expected to be one of the main beneficiaries of the oil boom, as Saudi Arabia will run a budget surplus of 5.5% of GDP this year – its first since 2013 – and forecast economic growth of 7.6%. points, which is the fastest pace in a decade.

The International Monetary Fund estimates that PIFs are expected to undertake more investments than governments for the second year in a row in 2022. In a report this week, the fund listed “spending oil windfalls and pressure away from fiscal prudence” including through PIFs as one of the country’s downside risks.

“What really matters is how they [Gulf states] The benefits of managing this new cycle and how they can maintain additional liquidity at the same time and policies that don’t cause them to fall into pro-cyclicality,” Azour said.

The IMF forecasts that economic growth in the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman, will accelerate from 2.7% in 2021 to 6.4% this year.

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