Political turmoil in the Middle East and a sharp decline in oil prices highlights the "urgency" oil exporting countries should have in adjusting their government spending plans, according to the latest regional outlook from the International Monetary Fund (IMF).
The IMF forecast growth in the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region would be 2.5 percent in 2015, down from growth of 2.7 percent last year and down 0.5 percentage points from the fund's last predictions in May.
The loss of growth momentum is largely down to the more than 50 percent decline in oil prices since June 2014 (then, a barrel of benchmark Brent crude traded at $114 a barrel, now it costs around $48) and growing political turmoil in swathes of the region, caused by civil war and conflict.
The IMF's report, produced under the Fund's Director of the Middle East and Central Asia, Masood Ahmed, said that "the near-term outlook for the MENAP region is dominated by geopolitical and oil price developments."
"Regional uncertainties arising from the complex conflicts in Iraq, Libya, Syria, and Yemen are weighing on confidence," the IMF said, while "low oil prices are also taking a toll on economic activity in the oil-exporting countries."
Oil-exporting countries such as Saudi Arabia, Iran, Iraq, Kuwait, Qatar, UAE, Algeria and Libya who are all members of the powerful Organization of Oil-Exporting Countries, OPEC, have all seen their governments' revenues drop sharply as a result of a decline in oil prices.
Despite the increased pressure on governments, OPEC has so far refused to cut oil production to support prices in a bid to maintain its market share of the industry and to put pressure on rival U.S. shale oil producers.
The IMF predicted that oil exporting countries in the Middle East would continue to grapple with lower oil prices and that MENA (excluding Afghanistan and Pakistan) would see $360 billion decline in export revenues this year.
The oil price decline has "increased the urgency for MENAP oil exporters to adjust their fiscal policies," the IMF said, predicting fiscal deficits to be 12.7 percent of GDP in the MENAP oil exporter countries and 7.3 percent of GDP in MENAP oil importer countries in 2015.
For Saudi Arabia, OPEC's largest oil producing member and de facto leader, the IMF predicted a fiscal deficit of 21.6 percent of GDP in 2015. As such, oil exporters needed to adjust their spending, the IMF urged.
"Because the oil price drop is likely to be large and persistent, oil exporters will need to adjust their spending and revenue policies to secure fiscal sustainability, attain intergenerational equity, and gradually rebuild space for policy manoeuvring," it said, warning that adjustment plans in most MENAP oil exporters "are currently insufficient to address the large fiscal challenge."
Adding to the gloom, the IMF warned that if regional conflicts, such as the civil wars in Syria, Iraq, Libya and Yemen prove to be "more persistent than expected, they would reduce growth in the affected countries, with adverse spillovers to the region and beyond."
While the outlook might not look so rosy for oil exporters in the region, oil importing countries like Egypt, Jordan, Syria and Lebanon have benefitted from lower oil prices "as well as economic reforms and improved euro area growth," the IMF remarked.
Oil importers' "strengthening recovery" could be upset by a wider global slowdown, however. The predictions come against a backdrop of uneven and uncertain global growth, with concerns about a slowdown in China, the world's second largest economy, looming large.
Earlier in October, the IMF revised global growth forecasts lower again, predicting 3.1 percent growth in 2015 although it expected growth to accelerate to 3.6 percent in 2016.
Although the IMF said that for the MENAP region, growth could well improve to 4 percent in 2016, "supported by improved prospects for Iran, some recovery in oil production and exports, and assumed easing of regional conflicts," there is considerable uncertainty about next year's projections, it said.
"Moreover, raising economic prospects for the long term will require extensive structural reforms."