Middle East and Central Asia must spend oil windfall wisely

Oil prices will remain between $ 60 and $ 65 per barrel range by 2010 maintaining the strong growth trends in the Middle East and Central Asia region. The region's economies are set to witness a 6 to 7 % growth in 2007, Mohsin Khan Director Middle East and Central Asia Department at the IMF said.
In his paper on "Economic Outlook for the Middle East," he said: "The surplus income needs to be spent on creation of job opportunities and human resource development by the oil rich nations. Current account balance reached $ 119 bn and the oil exports touched $ 160 bn in 2006. The saving-investment gap, which widened in 2005, has flattened. The current account surpluses have grown faster than official reserves with cumulative surplus reaching a $ 701 bn in 2006 from $ 58 bn in 2003."

"The region's fiscal and external surpluses are still rising, but at a slower pace than in recent years. Progress in reducing debt and building official reserves has put the region in a better position to absorb shocksand address development needs.
Khan, who was joined by Masood Ahmed director external relations at the IMF, during his recent visit to the region said that the Gulf Cooperation Council (GCC) countries' should spend the surplus revenues cautiously by keeping in view the main priorities like job creation, human resources development as part of a medium to long-term strategy.

The GCC investment plans for 2006-10 amount to over $ 700 bn covering investments in the oil and gas sector, infrastructure, and real estate.
"These projects should enhance growth and employment, and help narrow the region's large external surplus. In addition, the oil projects will boost production and petroleum refining capacity, and so help to promote global oil market stability. Oil importers are continuing to make progress with fiscal consolidation and financial sector oversight. Economic performance in the region remains strong. Growth in the region continues to outpace global growth and should average 6 to 7 % in 2006 and 2007 similar to the rates of the past three years.”

Strong external inflows resulting from high oil and non-oil commodity prices, foreign investments, and remittances are fuelling credit growth, and inflation continues to edge up, though it remains moderate in most countries.
"High oil prices, a favourable global environment, and generally good economic policies underpin this strong performance, but there are risks. Most importantly, further conflict and a worsening security situation would eventually have a broader impact on the regional economy than we have seen so far. Global developments, including a sharper-than-expected tightening of international financial market conditions, or a slowdown resulting from a disorderly unwinding of global imbalances, could also hit regional growth.”

Policies should continue to aim at strengthening the region's resilience to such developments.
"Policies are on the right track. With the growing realisation that the increase in oil prices and hence in oil revenue will endure, many oil-exporting countries have started to pick up the pace of spending and are putting in place major programs to upgrade their social and physical infrastructure."