According to the IMF, the energy-rich states of the Middle East will bring in up to $1.3 trillion in additional oil revenues over the next four years as they enjoy a windfall that will bolster the firepower of the region’s sovereign wealth funds at a time when global asset prices are sold out.
The IMF’s projections underline how high energy prices resulting from Russia’s war in Ukraine support the absolute monarchies of the Gulf as much of the rest of the world grapples with rising inflation and fears of recession.
Jihad Azour, IMF director for the Middle East and North Africa, told the Financial Times that the oil and gas exporters in the region, especially the Gulf countries, compared to expectations for the war in Ukraine, have “up to 2026 more will see cumulative oil revenues of $1.3 trillion. ”.
The Gulf is home to some of the world’s largest oil and gas exporters and some of the largest and most active SWFs. These include Saudi Arabia’s Public Investment Fund, 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 US stocks in the second quarter, including Amazon, PayPal and BlackRock, to take advantage of the decline. stock prices. deposits on the market.
Gulf SWFs were similarly active during the pandemic as they sought to capitalize on the market volatility brought on by the Covid-19 crisis. During the global financial crisis in 2009, they took advantage of the turmoil to take stakes in ailing 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 return on investment, but also seek to diversify economies and develop new industries.
Azour said it is important that Gulf states use the latest windfall to “invest in the future,” including preparing for the global energy transition.
“It is an important moment for them to . . . accelerate in sectors such as technology [domestically] because this is something that allows them to increase productivity,” he said. “In addition, their investment strategy could benefit from the fact that asset prices for new investors have improved, and the ability to increase their market share in certain areas are also opportunities. ”
IMF Jihad Azour said Gulf states should use the windfall to ‘invest in the future’ © Karim Sahib/AFP/Getty Images
But he added that it was critical that they maintain fiscal discipline and reform momentum to reduce their country’s dependence on oil.
Traditionally, the health of Gulf economies has followed oil price volatility, with government spending fueled by petrodollars being the main driver of business activity. As a result, booms were often followed by declines.
The bonanza comes after years of subdued growth in the Gulf that caused governments to climb debt, tap into their reserves and delay state projects.
But Saudi Arabia, the world’s largest oil exporter and the region’s largest economy, has made huge expenditures under the leadership of the PIF, which has been tasked with developing a series of mega-projects aimed at boosting the conservative kingdom. modernize while seeking investment abroad.
The PIF is expected to be one of the main beneficiaries of the oil boom, as Saudi Arabia is on track to record a fiscal surplus of 5.5 percent of gross domestic product this year — the first surplus since 2013 — and predicts an economic growth of 7.6 percent, the fastest pace in ten years.
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The IMF estimates that by 2022 the PIF is expected to invest more than the government for the second year in a row. In a report this week, the fund cites “pressure to issue oil windfalls and deviate from fiscal prudence,” including through the PIF, as one of the kingdom’s downside risks.
“What will really matter is how they [Gulf states] how to manage this new cycle while preserving the benefits of the extra liquidity and the policies that will not lead them to pro-cyclicality,” Azour said.
The IMF predicts that economic growth in the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman, will accelerate from 2.7 percent in 2021 to 6.4 percent this year.