Falling Oil Prices Hurt Exporters across Mideast, Central Asia

Lower oil prices challenge exporters, provide contained benefits to importers

Exporters need to adjust spending gradually, reform subsidies, diversify

Importers should avoid spending windfall, continue reforms to boost jobs and growth

The IMF projects oil exporters in the MENAP and CCA regions to have large export and revenue losses. In the countries of the Gulf Cooperation Council (GCC)—which are most affected—oil and gas export earnings are expected to go down by about $300 billion. For importers, lower prices provide relief through lower energy import bills, which could help governments, producers, and consumers.

The global institution advised exporters to avoid abrupt spending cuts despite the unfavorable developments in the oil market while urging importers to treat savings from lower prices as transitory.

“Fortunately, most oil exporter governments have the financial resources to avoid a steep reduction in their spending plans for this year. Over the medium term, however, they would need to gradually but decisively adjust their fiscal positions to ensure sustainability and intergenerational equity,” IMF Middle East Department Director Masood Ahmed told a press conference in Washington. “Importing countries are well-advised to avoid entering into spending commitments that would be hard to reverse if oil prices returned to higher levels,” he added.

New realities

Oil prices have declined by more than 55 percent since September 2014 to levels not seen since a short period in 2009. The drop is estimated to have been driven by both supply and demand factors: higher-than-expected supply, particularly from the United States, was not offset by production cuts by the Organization of the Petroleum Exporting Countries (OPEC) members, just as global oil demand (especially from China, Japan, and the euro area) was weakening.

Over the medium term, the outlook for oil prices is likely to depend on how oil investment and production respond to lower oil prices. It will also depend on whether OPEC resumes its role as the swing producer or whether oil prices will be more strongly influenced by the marginal cost of shale oil production, the IMF said.

Taking into account developments in the oil market and world economy, the report revised growth projections for the MENAP and CCA regions in 2015 (see table).

Oil exporters lose big

Plummeting oil prices are expected to lead to significant declines in the fiscal balances of oil exporters in the MENAP...