The decreasing price of oil and its effect on oil exporting countries is expected to be a source of major change in the Middle East's economy in the coming years, explained International Monetary Fund (IMF) Director of Middle East and Central Asia Department Masood Ahmed on Friday at one of the 2015 annual meetings.
"While we might see day to day variations of price of oil...it will still be well below the kinds of numbers we have been seeing," said Ahmed. The exports of oil from countries in the Middle East and North Africa have gone down by US$ 260 billion between 2014 and 2015.
"One consequence is budget deficits (in these countries) have increased dramatically because they have continued to spend from savings," stressed Ahmed. "We expect that oil prices will likely remain low in the coming years...to achieve fiscal sustainability they will have to undertake gradual by sizeable sustained consolidation," he asserted. Ahmed anticipates that by the year 2020 over 10 million people will need to find work in oil exporting countries in order to achieve fiscal sustainability.
The slowdown from a decrease in oil exports could also have remittances to many of the oil importing countries in the Middle East. "Increase in international interest rates could lead to higher borrowing costs...the slowdown in emerging markets that people are concerned about could also have an impact on exports from these countries," Ahmed highlighted.
He urged oil import countries to use the "tailwind of lower oil costs" to go into investment and generate growth. For countries that face large external shock from the decline in oil prices the IMF recommends, "trying and cushioning the impact of the shock on the economy by having some fiscal countercyclical spending," he said.
In terms of Iran's influence in the region, Ahmed indicated that the easing of sanctions won't lead to substantial improvement for the country until the end of 2016. He said that there would be a definite increase in the production of oil from when the country is free from sanctions next year and will also have reduction in the financial cost in doing business itself. "Iran could continue to grow at rates of 4.5-5 percent but sustaining that rate of growth will require series of changes and reforms within the country," said Ahmed.