IMF Predicts Major Revenue Loss for MENA Oil Exporters

Middle East and North Africa oil exporters are likely to lose more than US$230 billion in crude revenue this year if oil prices persist at current levels, while their breakeven oil prices are set to soar amid higher spending needs, the International Monetary Fund said in a report.

“Measured in real terms (adjusted for inflation), oil prices have not been this low since 2001,” the IMF said in its regional economic outlook report for the Middle East and Central Asia. “Oil prices at these levels could result in more than US$230 billion in lost annual revenue across MENAP [Middle East, North Africa, Afghanistan and Pakistan] oil exporters, compared with October projections, placing significant strains on fiscal and external balances.”

Oil prices are down some 60% since the beginning of the year as the coronavirus pandemic decimated oil demand. OPEC and allies agreed over the weekend to curb crude output starting in May. The pact will see the coalition trimming production by a historic 9.7 million b/d in May and June and gradually reducing the cuts through April 2022.

“The subsequent production cut agreement by OPEC+ at the start of April, complemented by further production cuts by oil exporting G20 economies, could provide some support to oil prices, particularly if global demand increases,” the IMF said in the report. The IMF, which said on Tuesday the world is likely set for the worst recession this year since the Great Depression, is assuming oil prices will average US$35.61/b in 2020 and US$37.87/b in 2021.

Fiscal breakeven

The oil price crash and the coronavirus pandemic will also become a strain on MENAP budgets amid higher spending at a time when oil revenue are set to decline. This situation will lead to soaring fiscal breakeven crude prices that are needed to balance the budgets of regional oil exporters.

“Notwithstanding some improvement over the past two years, breakeven oil prices (oil prices needed to balance the budget) are much higher than current oil prices in all MENAP oil exporters, exceeding US$80 in some countries (Algeria, Bahrain, Iran, and Oman),” the IMF said.

The fund is projecting MENAP oil exporters’ fiscal deficits will widen to 10% of GDP in 2020 from 2.8% of GDP in 2019 due to spending to combat the coronavirus and the economic fallout from the pandemic.

“Decreases in oil prices are so large that fiscal and export revenues are expected to decline across all oil-exporting countries in the region, including those that might manage to gain market share from higher-cost producers,” the IMF said. “The lower oil and commodity receipts will erode policy space to address the crisis in some countries, put pressures on exchange rates and government budgets, and weaken external positions.”

Economic contraction

MENAP economies are forecast to contract 4.2% in 2020 versus October’s projection of 2.1% growth, the fund said. In the six-member GCC, growth is projected to shrink 2.7% in 2020, compared with October’s forecast of 2.5% growth. GCC countries are Saudi Arabia, Kuwait, the UAE, Oman, Qatar and Bahrain.

The hardest hit country in MENAP is Libya, the biggest holder of oil reserves in Africa where output has plunged amid a war between two opposing factions vying for control of the country’s oil facilities. Libya’s economy is forecast to contract nearly 60%, according to the fund. The economy of Iran, which has most the coronavirus cases in MENAP, is forecast to shrink 6% in 2020.

“Growth is projected to contract by 5.2% in Algeria, because of declining oil production capacity and loss of export market share, and by 4.7% in Iraq, where mass social protests are disrupting activity and oil production is projected to contract by 2% from ongoing security and supply chain constraints,” the fund said.

Saudi Arabia’s GDP will shrink 2.3%, while the economy of the UAE, OPEC’s third-largest oil producer, will contract 3.5%, and Kuwait, OPEC’s fourth largest oil producer, will shrink 1.1%

“Looking ahead, growth in the MENAP oil exporters is expected to rebound in 2021, reaching 4.7%,” said the fund. “This reflects current projections of fading effects from the COVID-19 outbreak, gradual improvement in oil prices, and the benefits from sustained global policy easing.”