Washington DC, Asharq Al-Awsat—Gulf states must cut spending in line with deteriorating oil prices in order to avoid budget deficits in 2015, the Deputy Director of the International Monetary Fund (IMF) Middle East Department Adnan Mazarei said on Sunday.
In a broad-ranging interview with Asharq Al-Awsat, Mazarei gave his take on the impact of the recent dramatic fall in oil prices, OPEC’s decision not to reduce output, as well as the general economic situation across the region.
“In recent years, Gulf Cooperation Council (GCC) states maintained high levels of government spending in order to ensure the survival and recovery of economic activity. Gulf states now realize that in the medium-term they must make a course correction in order to avoid pressure on their budget. Deteriorating oil prices mean that Gulf States must adapt and take a tighter grip on their budgets, directing government spending towards areas that lead to job creation,” Mazarei told Asharq Al-Awsat.
“The countries that will record loses are the oil producing countries like Iran, Saudi Araba and other GCC states who will face pressures on their budget. Each state’s ability to deal with these pressures and difficulties will depend on its [financial] reserves,” Mazarei said.
“As for Iran, it will have to balance its budget in order to deal with the lower oil prices,” he added.
But the reduction in the price of oil is not detrimental across the board, and may even prove beneficial to many regional countries, the IMF deputy director said.
“I think that the decline in oil prices will help some countries, particularly the oil importing countries in the region like Jordan, Morocco and Egypt,” Mazarei said.
“But there will still be complications for these countries if oil prices continues to decline, as they will face problems related to the return of workers from the Gulf and possibility reduced capacity for GCC states to provide assistance, grants and loans,” he warned.
The IMF deputy director refused to comment on the political ramifications of OPEC’s decision not to reduce oil output, focusing instead on the economic aspects of the decision. “Lower oil prices reflects changes in supply and demand in the global market . . .That is a large supply of oil and weak demand, “ he told Asharq Al-Awsat.
As for talk about deteriorating oil prices “as an instrument of political pressure,” whether on Iran or in response to the North American shale oil boom, Mazarei described this as an “assumption” and refused to comment.
The IMF deputy director also pointed to unrest in the Middle East as a major reason for economic slowdown in the region, citing the advance of Islamic State of Iraq and Syria (ISIS) fighters across many parts of the region, as well as the Shi’ite Houthi militia’s takeover of parts of Yemen.
“There can be no doubt that the civil war in Syria, along with the crisis in Iraq, represents a major humanitarian crisis that has led to the displacement of millions and the destruction of the infrastructure of both Syria and Iraq. The deterioration of economic activity [in Iraq and Syria] has created a major economic crisis for neighboring countries,” Mazarei said.
He said that the IMF stands ready to assist in attempts to address the deteriorating situation in Iraq and Syria, but only after the violence has stopped. “Once the violence stops, we are ready to provide technical assistance and advice, and if these countries want financial assistance, the IMF is ready to provide it,” he said.