The International Monetary Fund (IMF) warned on Wednesday that the huge increase in handouts that the governments of the Middle East and North Africa (MENA) have made to keep a lid on Arab Spring unrest is a danger for all the economies of the region — both rich and poor.
The budget deficits of oil-importing countries are expected to widen to 7.6% of gross domestic product, a 50% rise over two years, the IMF said in its Regional Economic Outlook: Middle East and Central Asia. These spending increases are going mainly to subsidies on food and fuel, while governments are investing less and borrowing more, making it harder for economies to recover, it said.
But the IMF also said the wealthy oil-exporting countries of the Gulf face a risk from the largesse they have bestowed on their populations this year. Governments have been able to cover the cost of higher subsidies, pay raises and job creation because of rising oil prices, but those may not last if the world economy slows. It warned that a decline in oil prices could push them into deficit spending.
“Oil-exporting countries have understandably increased fiscal spending to address social needs,” Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, said at a conference Wednesday. “Looking forward, the widening of non-oil fiscal deficits makes many countries more vulnerable to swings in oil prices, at a time when the world economy is facing heightened risks.”
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