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Commodity prices put pressure on Middle East Commodity prices put pressure on Middle East
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Governments across the Middle East and north Africa can expect to lose $2tn in income over the next five years as the slump in oil and commodity prices sends unemployment soaring and denies them tax receipts.Governments across the Middle East and north Africa can expect to lose $2tn in income over the next five years as the slump in oil and commodity prices sends unemployment soaring and denies them tax receipts.
The drop in oil prices from their peak between 2004 and 2008, coupled with declines in metal and basic food prices will force many governments to borrow to make up the difference, the International Monetary Fund said in its annual Fiscal Monitor. The drop in oil prices from their peak between 2004 and 2008, coupled with declines in metal and basic food prices, will force many governments to borrow to make up the difference, the International Monetary Fund said in its annual Fiscal Monitor.
The Washington-based lender said borrowing was already increasing across the region and pushed debt to GDP ratios in emerging market and middle income economies to levels last seen in 2008.The Washington-based lender said borrowing was already increasing across the region and pushed debt to GDP ratios in emerging market and middle income economies to levels last seen in 2008.
Analysts have previously warned that Saudi Arabia and a handful of other countries have large savings and can absorb the loss for several years, but widening fiscal deficits are expected to create even more political instability in a region already wracked by terrorism and widespread corruption.Analysts have previously warned that Saudi Arabia and a handful of other countries have large savings and can absorb the loss for several years, but widening fiscal deficits are expected to create even more political instability in a region already wracked by terrorism and widespread corruption.
The IMF said: “The fiscal positions of commodity exporters have been especially hard hit. In the Middle East and North Africa, the cumulative fiscal balances of oil exporters alone are expected to deteriorate by over $2tn in the next five years relative to 2004–08, when oil prices peaked. The IMF said: “The fiscal positions of commodity exporters have been especially hard hit. In the Middle East and north Africa, the cumulative fiscal balances of oil exporters alone are expected to deteriorate by over $2tn in the next five years relative to 2004–08, when oil prices peaked.
“In 2016, the outlook remains uncertain, particularly for oil exporters that based their budgets on optimistic oil price assumptions and may have to revise their plans in the course of the year,” it said.“In 2016, the outlook remains uncertain, particularly for oil exporters that based their budgets on optimistic oil price assumptions and may have to revise their plans in the course of the year,” it said.
Budget balances in emerging market and middle-income economies deteriorated sharply, forcing the IMF to downgrade its forecasts from an average deficit of 2.4% of GDP in 2014 to 4.5% in 2015. The IMF said the 2015 number was the largest deficit since the 1990s and the largest yearly deterioration since the beginning of the global financial crisis.Budget balances in emerging market and middle-income economies deteriorated sharply, forcing the IMF to downgrade its forecasts from an average deficit of 2.4% of GDP in 2014 to 4.5% in 2015. The IMF said the 2015 number was the largest deficit since the 1990s and the largest yearly deterioration since the beginning of the global financial crisis.
Sovereign debt ratings have recently been downgraded in a number of countries, including Azerbaijan, Brazil, Russia, Saudi Arabia, South Africa, and Venezuela. More are expected unless commodity prices pick up markedly during the next year.Sovereign debt ratings have recently been downgraded in a number of countries, including Azerbaijan, Brazil, Russia, Saudi Arabia, South Africa, and Venezuela. More are expected unless commodity prices pick up markedly during the next year.
The IMF said developed economies in Europe also remain vulnerable to a budget crisis as a combination of low inflation, low interest rates and sluggish growth prevent them cutting deficits without harming their long term financial position.The IMF said developed economies in Europe also remain vulnerable to a budget crisis as a combination of low inflation, low interest rates and sluggish growth prevent them cutting deficits without harming their long term financial position.
“A lasting solution to the debt overhang problem is not possible without higher medium-term growth,” it said.“A lasting solution to the debt overhang problem is not possible without higher medium-term growth,” it said.
“A sustained increase in growth of 1 percentage point could bring debt ratios in advanced economies to their pre-crisis levels within a decade. This underscores the need to accelerate structural reforms, including tax and expenditure policies that reinforce incentives to work and invest, and spur productivity growth,” it added.“A sustained increase in growth of 1 percentage point could bring debt ratios in advanced economies to their pre-crisis levels within a decade. This underscores the need to accelerate structural reforms, including tax and expenditure policies that reinforce incentives to work and invest, and spur productivity growth,” it added.