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Middle East will see ballooning deficits tumble as oil prices rise

Public Policy

Oil exporters in the Middle East and North Africa will see their budget deficits shrink as austerity, taxes and stable oil prices begin to take effect, a director at the International Monetary Fund (IMF) told CNBC.

“Sizeable adjustments were made in the last two years and yesterday (Sunday) the Saudi government reemphasized commitment to bring the deficit down to balance the budget by 2020,” Jihad Azour, the IMF’s director of the Middle East and Central Asia Department, told CNBC in Dubai on Monday.

As oil prices began their slump in mid 2014, oil exporters dipped into international reserves to fund their budgets. Saudi Arabia, like many of its neighbors, introduced austerity measures, slashing energy and utility subsidies, introducing a value-added tax, and announced plans to diversify its economy.

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Last month, to soften the impact of austerity measures and curtail a public backlash, the Saudi government restored some perks and bonuses for government employees.

“When you have a massive or sizeable adjustment on the public finances sometimes you have to fine tune it. And those adjustments or those reductions in the cuts are about 1 percent of the budget. Therefore, I think they will be compensated by other measures,” Azour added.

For the oil exporting nations of the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, the cumulative overall budget deficits for the five-year period between 2016 and 2021 are estimated at $375 billion, down from a 2016 projection of $565 billion, the IMF said in its latest Regional Economic Outlook. The average fiscal deficits soared to about 10 percent of GDP (gross domestic product) in 2015 and 2016, the IMF said, adding that the deficit could fall below 1 percent in 2022.

Saudi Arabia’s budget deficit shrank to 297 billion riyals ($79 billion) in 2016. That was well below a record 367 billion gap in 2015, and below the government’s projection in its original 2016 budget plan of a deficit of 326 billion riyals, according to Reuters.

“What has been happening is two fronts, one is, to reduce the level of the budget deficit, and on the other hand, the diversification program through structural reforms in order to allow the economy to grow faster and the private sector to reach growth,” Azour said.

“Bringing down the level of budget deficit will allow the Saudi government to have additional fiscal space that can be used for more investment and more specific social programs.”

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“The improvement of (the) oil price helped reduce the level of budget deficit this year. And there are a certain number of fiscal reforms planned going forward. On the revenue side, the value added tax is to be implemented in 2018 and this will, in fact, be a very important fiscal reform. On the expenditure side, a continuation of the removal of subsidies on energy and oil will help reduce the current level of expenditures.”

To preserve those reserves and to finance deficits, Saudi Arabia and Kuwait tapped international investors to raise money. External sovereign issuance reached $50 billion in 2016, more than five times the 2015 amount, the IMF said.

“The level of indebtedness of the GCC (Gulf Cooperation Council) nations is low,” Azour said.

“They have very good access to the international capital markets and they are able to finance their deficit at a very low rate. Which is, in fact, giving the level of liquidity that exists in the markets. This is something that they are resorting to that is better for them than to use their reserves to finance their deficit.”

The International Monetary Fund also said MENAP oil exporters can expect gross domestic product to expand 1.9 percent in 2017 and 2.9 percent in 2018, but that remains well below the economic growth registered in 2016 of 4 percent


11 Comments on "Middle East will see ballooning deficits tumble as oil prices rise"

  1. bobinget on Tue, 2nd May 2017 11:19 am 

    If KSA stopped bombing it’s neighbor Yemen, stopped
    interfering in Syria, stopped treating its Shiite population like second or third class citizens,
    stop demeaning it’s female population, scaled down arms purchases, stop funding al Qaeda even if AQ is ‘helping’ in Syria and Yemen and give real democracy a chance, the nation could survive in a $50 a barrel world.

  2. bobinget on Tue, 2nd May 2017 11:38 am 

    Our President is now calling for a government shutdown in September.

    Is this a cue to staunch followers for a government takeover. IOW’s a coup.

    Yesterday ,Trump called for revamping Senate rules.
    Certain to turn ‘moderate’ senators against him.

    I’m not worried about a DJT takeover of Democracy.
    WE should be concerned about military intervention.

    What do you think?

    Congress should appoint a special prosecutor to continue the Congressional investigation. While Congress is still smarting over this latest over-reach
    might be a prime time.

  3. Jerome Purtzer on Tue, 2nd May 2017 1:38 pm 

    The Donald needs a big distraction like a war with all of our National Enquirer designated 8 enemies at once. That will take the focus off of the Russians, Health Care, the Mexican Wall, Tax Returns, Conflicts of Interest and all the other pesky varmints making noise.

  4. peakyeast on Tue, 2nd May 2017 1:53 pm 

    “And those adjustments or those reductions in the cuts are about 1 percent of the budget.”

    So they found the people who could make trouble and paid them off?

  5. bobinget on Tue, 2nd May 2017 2:18 pm 

    J. regulatory,
    On your point DJT is looking for distraction, agreed.

    The good news: Even a majority Republican Congress
    won’t vote funding for yet another war; (Yemen, Syria, Iraq, Somalia, Afghanistan, on going).

    IMO DJT, buoyed by approval from loyalists doesn’t
    realize he has lost credibility even with Congress.
    If DJT can somehow shut down government he may be able to get shut of funding for dozens of regulatory bodies by asking and getting heads to resign.

    Trumpet can issue Tweets and Presidential edicts from now till next Tuesday, we won’t enter a sixth (front) undeclared war.
    (unless NK can be tricked into attacking US Naval)

    I just wish our FBI would act sooner than later.

  6. makati1 on Tue, 2nd May 2017 5:37 pm 

    BobInget, ever hear about “false flags”? That is how the U$ starts wars these days. Congress has ZERO say in wars now. With the MIC and generals running the country, another really big one is in the cards for the U$ near future. Like all ‘wars’ since WW2, the U$ will not win, but this time it will come to the shores of America and Americans will feel the death and pain direst. Wait and see.

  7. Apneaman on Tue, 2nd May 2017 8:20 pm 

    Jerome, the Cheeto is the distraction. A fucking clown show, freak show and circus all rolled into one. He’s the 1% er CEO for the last stage of hollowing out the US and bleeding the plebs of what little they have left. Ohh and if you can’t be bled anymore, then look out.

    The City’s Questionable Ordinance That Criminalizes Sleeping in Tents and Boxes

    Ship em off to another corporate for profit prison and get em working for other corporations for a few bucks a day.


    “In an article at U.S. Uncut, Kelly Davidson reports that corporations, in partnership with the United States government, are forcing prisoners to work for wages as low as .25 and $1.15 per hour. It’s called “insourcing.” If you are a CEO or a stockholder in one of these companies it’s great! You get your products made by prison slaves for practically nothing, or you get your products made in third world countries for practically nothing—either way, you reap the profits.

    Which companies make use of prison labor?

    I’ve annotated Davidson’s list:

    Lets start with Whole Foods. This high-end grocery chain purchases artisan cheese and fish prepared by prison inmates who work for private companies. The inmates are paid .74 cents a day to raise tilapia that Whole Paycheck sells for $11.99 a pound.

    Then we have McDonald’s. It buys tons of prison-manufactured items including plastic cutlery, food containers, and uniforms. As Davidson notes, the inmates who sew the uniforms make even less money per hour than the people who wear them.

    And, of course, there’s Wal-Mart. The official company policy is: “no forced or prison labor will be tolerated.” But Wal-Mart gets around this by buying from independent prison labor factories. Same thing Whole Foods is doing. According to Davidson: “Wal-Mart purchases its produce from prison farms where laborers are often subjected to long, arduous hours in the blazing heat without adequate sunscreen, water, or food.”

    If you like sexy lingerie, you may enjoy buying from Victoria’s Secret. Know that female inmates in South Carolina, forced to work for slave wages, make a lot of the company’s garments, as well as J.C. Penny’s women’s underwear.

    In 1993, AT&T laid off thousands of union telephone operators in a move to smash unions and increase profits. It has a prison labor policy similar to Wal-Mart’s. Yet, since 1993, AT&T has used inmates, managed by third party companies, to work their call centers, paying them $2 a day.

    It turns out BP used African-American inmates to clean up the 4.2 million barrels of oil it spilled into the Gulf coast after the Deepwater Horizon oil rig disaster. The right thing was for BP to hire Coastal residents whose livelihoods it had just destroyed, but the company opted for cheap prison labor. Then its PR department put out ads touting the company’s dedication to the Gulf and the people who live there.

    Davidson sums up:

    From dentures to shower curtains to pill bottles, almost everything you can imagine is being made in American prisons. Also implicit in the past and present use of prison labor are Microsoft, Nike, Nintendo, Honda, Pfizer, Saks Fifth Avenue, Macy’s, Starbucks, and more.”

    “The “more” includes, among others, Nordstrom, Eddie Bauer, Motorola, Compaq, IBM, Boeing, Texas Instrument, Revlon, Macy’s, Target Stores, Nortel, Hewlett-Packard, Intel, Honeywell, Pierre Cardin, 3com, and Lucent Technologies.”

    Next step is make the prisoners pay with the handful of dollars they get for their corporate slave labour.

    Welcome to Jail Inc: how private companies make money off US prisons

    In a bid to cut costs, more state prisons and county jails are adding healthcare to the growing list of services that are outsourced to for-profit companies

    This will carry on and get worse it and plenty more racketeering is going on while the plebs are enraptured by the clown-freak show. The overlords are vampires and will continue to suck as many dry as they can. They won’t stop.

  8. makati1 on Tue, 2nd May 2017 10:21 pm 

    “Category 1 Warfare: Minor civil disobedience and/or riots
    Category 1 Economics: Increased mortgage foreclosures, some strip-shop and mall closings, decreased spending overall

    Category 2 Warfare: Major civil disobedience, riots, and/or insurrection
    Category 2 Economics: The above, plus tariff wars, stock and bond market crashes

    Category 3 Warfare: Minor bombing and/or ground invasion
    Category 3 Economics: The above, plus minor inability of governments to pay entitlements, significant inflation, credit collapse

    Category 4 Warfare: Major bombing and/or ground invasion
    Category 4 Economics: The above, plus the end of the dollar as a reserve currency/end of the petrodollar, considerable inflation, short-term bank closures

    Category 5 Warfare: Nuclear destruction
    Category 5 Economics: The above, plus major inability of governments to pay entitlements.”

    The U$ is at stage 1 on the road to stage 5. The time-line is getting shorter and shorter. Glad I do not live there.

  9. Boat on Wed, 3rd May 2017 12:31 am 


    Wow those talipa are high. I can get then for $1.79 per lb. They are great fried.

  10. rockman on Wed, 3rd May 2017 12:46 pm 

    And now back to the thread: “Middle East will see ballooning deficits tumble as oil prices rise”

    So again, thank you Captain Obvious for your keen insight to such a complex dynamic. LOL.

  11. Boat on Wed, 3rd May 2017 2:23 pm 

    Except prices may be ready to tumble.. Just in the last few days both Nigeria and Lybia have added 600,000 bpd to the market. If this production can be sustained and the US keeps adding production look for the glut to grow.

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