‘In Bahrain and Oman, spending restraint has contributed to notable improvements in the underlying fiscal positions. However, significant additional fiscal adjustment is still needed to maintain fiscal and external sustainability in these countries’, the IMF said in its November 2018 Regional Economic Outlook.
With the recovery in oil prices and non-oil activity, fiscal balances are expected to improve notably across oil exporters in the region, the Fund said. It said, with oil prices having increased significantly since 2016, most MENA oil exporters have seen tangible improvements in their external positions, although those positions remain weak in some countries, including Bahrain and Oman.
The IMF said fiscal reforms should continue in the region as all oil exporters confront similar medium-term fiscal challenges and fiscal balances remain vulnerable to oil price movements.
‘The current environment of temporarily high oil prices provides an opportunity for countries to rebuild buffers. The potential threats to the global outlook, including rising trade tensions, could put additional downward pressures on oil prices. Therefore, countries should further strengthen their fiscal frameworks to create space in the event policy support is needed’, the report said.
The IMF said higher oil prices have improved liquidity conditions for the banks. Nevertheless, private sector credit growth remains generally subdued, largely reflecting weak demand given the nascent economic recovery and a weak real estate market in several GCC countries.
‘In Oman, demand for credit in the construction sector has weakened, partly reflecting the effects of fiscal consolidation. In addition, policy rates in the GCC have risen in line with increases in the US Fed rate, resulting in higher interest rates that could have also affected the demand for credit’, the Fund said. It added that credit growth is anticipated to pick up gradually over the next two years in most GCC countries as the economic recovery continues.