The energy-rich countries of the Middle East will grow up to 1.3 trillion in the next four years, according to the IMF Global asset prices have sold out.
The IMF forecasts underscore how high energy prices, fueled by Russia’s war in Ukraine, are buoying the Gulf’s absolute monarchies while much of the rest of the world grapples with rising inflation and recession fears.
Jihad Azour, IMF director for the Middle East and North Africa, told the Financial Times that the region’s oil and gas exporters, particularly the Gulf states, had “extra cumulative oil revenues of 1.3%” compared to pre-war expectations in Ukraine trillions of dollars will be achieved by 2026”.
The Gulf is home to some of the world’s largest oil and gas exporters and several of its largest and most active sovereign wealth funds. These include the Public Investment Fund of Saudi Arabia, the Qatar Investment Authority, Abu Dhabi’s stable of vehicles including the Abu Dhabi Investment Authority, Mubadala and ADQ, and the Kuwait Investment Authority.
The $620 billion PIF, chaired by Saudi Crown Prince Mohammed bin Salman, invested more than $7.5 billion in U.S. stocks including Amazon, PayPal and BlackRock in the second quarter to capitalize on falling share prices to market filings.
Gulf sovereign wealth funds have been similarly active during the pandemic as they seek to capitalize on market volatility triggered by the Covid-19 crisis. During the global financial crisis in 2009, they used the turmoil to buy stakes in struggling Western companies.
In recent years, many of the funds have focused on sectors such as technology, healthcare, life sciences and clean energy as governments seek returns but also seek to diversify economies and develop new industries.
Azour said it is important that the Gulf countries use the recent windfall to “invest in the future”, including preparations for the global energy transition.
“It’s an important moment for them. . . Acceleration in sectors like technology [domestically] as this is something that allows them to increase productivity,” he said. “Additionally, their investment strategy could benefit from the fact that asset prices have improved for new investors, and the ability to increase their market share in specific areas are also opportunities.”
But he added that it is crucial that they maintain fiscal discipline and momentum on reforms aimed at reducing their countries’ dependence on oil.
Traditionally, the health of Gulf economies has tracked oil price volatility, with government spending fueled by petrodollars, the main driver of business activity. As a result, booms were often followed by downturns.
The bonanza comes after years of subdued growth in the Gulf that caused governments to borrow, tap reserves and slow state projects.
But Saudi Arabia, the world’s largest oil exporter and the region’s largest economy, is on a massive spending spree, led by the PIF, which has been tasked with developing a series of mega-projects that will modernize the conservative kingdom while seeking investment abroad must.
The PIF is expected to be one of the main beneficiaries of the oil boom as Saudi Arabia is on track to record a budget surplus of 5.5 per cent of gross domestic product this year – the first surplus since 2013 – and economic growth is forecast at 7, 6 percent, the fastest pace in ten years.
The IMF estimates that in 2022 the PIF is likely to outperform the government for the second year in a row. In a report this week, the fund cites “pressure to spend unexpected oil gains and deviate from fiscal prudence,” including from the PIF, as one of the downside risks to the kingdom.
“What’s going to be really important is how they do it [Gulf states] managing this new cycle while maintaining the benefits of the additional liquidity and policies that don’t lead them into procyclicality,” Azour said.
The IMF forecasts that economic growth in the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman, will accelerate to 6.4 percent this year from 2.7 percent in 2021 .