The economies of Middle East oil exporters are likely to suffer from a possible prolonged global recession as demand for the region's main export wanes, the International Monetary Fund said. Government expenditure, however, should mitigate the slowdown, the IMF said in a report released in Dubai.
Arab states in the Gulf and other oil exporters in the Middle East were previously seen as less vulnerable to financial turmoil as they were cushioned by accumulated windfall revenues from oil.
But with a continued oil price slide, those governments will be less inclined to maintain robust public spending, a key policy in mitigating the fallout from the economic downturn, the report said. "A major risk to the economic outlook is the possibility of a prolonged recession. This would keep oil demand and prices low," it said.
"If MEOE (Middle East Oil Exporters) governments come to believe that oil prices will remain depressed for a prolonged period of time, they are likely to reduce their spending to maintain fiscal sustainability."
Although oil has lost USD 100 since peaking at a record USD 147 a barrel in July, MEOE states have maintained a high level of capital spending, going from a massive collective surplus of USD 400 billion last year to a projected deficit of USD 10 billion in 2009, it said.