In response to "tightening" of public spending in the GCC, economic growth is projected to "slow further this year" from 3.75 percent to under two percent, said an International Monetary Fund (IMF) official Friday.
"We have downgraded our projections for growth for nearly all the exporters in the Middle East and North Africa even after the numbers in January that were significantly downgraded already," Director Middle East and Central Asia Department Masood Ahmed said.
Despite fluctuations in oil prices looking towards the medium term in 2020, "oil prices are still only expected to recover modestly to about 50 dollars till then," said Ahmed.
The overall growth rate for oil exporters will increase from two to three percent "mainly due to the increased growth in Iran because of the effect of lifting sanctions," he said.
The country is expected to produce an extra 600,000 of barrels a year due to its lifting of sanctions from the nuclear agreement. Iraq is also expected to increase its oil production this year as well.
In the Middle East and North Africa, oil exports for 2015 compared to 2014 were down by USD 319 billion. Based off current projects the IMF expects a further drop in oil revenues for 2016.
"This year despite the efforts to cut back on public spending we are going to see a widening of the deficits on most countries ... their efforts to cut back are being overtaken by the further drop in revenues," said Ahmed.
"This means that this effort to consolidate their spending and raise non oil revenues is something that countries in the region will need to continue over many years."
He added, "Fortunately most of these countries have the financial resources that they have built up and the capacity to borrow from the markets, they don't have to make the adjustment brutally but most do it in a gradual way but is an adjustment that has to be made." Spillovers from the decline in the GCC has had some negative effects on oil importing countries in the region, in terms of remittances, investment and tourism.
Another major factor affecting the Middle East outlook is conflict in the region including the "horrendous cost in human life and damage to those societies and they have given rise to large number of people ... who are displaced as refugees," said Ahmed.
"This is having an impact on the regions neighboring economies ... conflicts are having a dampening effect throughout the region," he reiterated.