1. MENAP Oil-Exporting Countries: Coping with Multiple Shocks

International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
April 2020
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The outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) oil exporters has weakened significantly with the onset of the coronavirus disease (COVID-19) outbreak and sharp decline in oil prices.1 Economies are expected to contract in 2020, while fiscal and external positions will come under significant pressure in many countries eroding policy space to deal with the crisis. Nevertheless, policies should continue to address the fallout from COVID-19. Spending on immediate healthcare should be given priority, while support to hard-hit sectors should be timely, temporary, and well-targeted, underpinned by central bank actions to ensure sufficient liquidity. Policies will result in higher near-term deficits. Once recoveries are well established, gradual fiscal consolidation should resume within the context of medium-term frameworks to meet future challenges, particularly from falling hydrocarbon revenue.

COVID-19 Outbreak: A Double Whammy

The COVID-19 pandemic is significantly affecting MENAP oil exporters. Nearly all countries in the region are affected by the spread of the virus, with some facing severe outbreaks. At the same time, a plunge in global oil prices is compounding strains on these economies, increasing challenges to combating the virus and preventing lasting economic damage. Beyond the devastating toll on human health, this combination of shocks is resulting in significant economic turmoil across the region.

Real GDP in MENAP oil exporters is projected to contract by 4.2 percent in 2020. This is a significant downward revision from the 2.1 percent growth projected in the October 2019 Regional Economic Outlook for the Middle East and Central Asia and reflects impacts through several key channels:

  • Spread of the virus and disruptions from containment measures. The COVID-19 epidemic has been reported in all MENAP oil exporters. Iran has a particularly high concentration, with more than 50,000 cases and more than 3,000 fatalities and is a source of risk for ongoing virus infections throughout the region. Necessary containment measures to halt the spread of the virus have affected job-rich sectors across the region, with negative effects on confidence and non-oil activity.
  • Lower growth in trading partners. Containment measures in major economies and key trading partners have significantly reduced global growth and demand for oil and other commodities (Global Developments and Box 1.1). This has resulted in lower trade and tourism flows and significant declines in global oil prices.
  • Historic declines in oil prices. The decline in global oil demand has been exacerbated by a large increase in oil supply, triggered by announced production increases in some major producers (Russia, Saudi Arabia, UAE) after the breakdown of the Organization of Petroleum Exporting Countries and other major oil producers (OPEC+) agreement in March. A subsequent production cut agreement by OPEC+ at the start of April, complemented by further production cuts by oil exporting G20 economies, could provide support to oil prices, particularly if global demand increases. Nevertheless, oil prices have tumbled by more than 60 percent since the beginning of this year, reaching $26 per barrel by the end of March (Figure 1). Measured in real terms (adjusted for inflation), oil prices have not been this low since 2001. Oil prices at these levels could result in more than $230 billion in lost annual revenue across MENAP oil exporters, compared with October projections, placing significant strains on fiscal and external balances. For some countries (Algeria, Bahrain, Iraq, Oman), this could lead to a rapid depletion of buffers, particularly as spending pressures increase to combat the COVID-19 outbreak.
  • Stiff headwinds from global financial markets. Global financial conditions have tightened sharply despite substantial policy easing by major central banks (April 2020 Global Financial Stability Report). Cumulative portfolio inflows to MENAP oil exporters have declined by more than $3.5 billion since the middle of February, despite a modest rebound at the start of April. External borrowing costs have risen, on average, by 279 basis points in the Gulf Cooperation Council (GCC) and by 942 basis points in Iraq over this period, widening further than similarly rated emerging economies. These conditions pose major challenges for those with existing funding pressures (Bahrain, Iraq, Oman) and could become a wider concern given the region’s estimated $10 billion of maturing external sovereign debt this year.

Real Oil Price and Oil Price Volatility

(2020 US$ per barrel; Index)

Source: Bloomberg Finance LP.

Responding to the Crisis

MENAP oil exporters have swiftly initiated broad policy actions to save lives, contain the spread of the pandemic, and support hard-hit sectors. Overall, announced fiscal measures average 3.2 percent of GDP ($44 billion) across countries, and 3.8 percent of GDP ($30.6 billion) in the GCC. Similarly, liquidity support amounts to about 2 percent of GDP (or about $41 billion) in the GCC (Figure 1.2).

Policy response to COVID-19

(Percent of GDP)

Sources: National authorities; and IMF staff calculations.

Note: GCC = Gulf Cooperation Council; MCD = Middle East and Central Asia Department.

Policy efforts have appropriately focused on mitigation and containment, and targeted support to hard-hit households, sectors, and businesses. In particular:

  • All countries affected by the spread of the virus have introduced varying degrees of domestic and international travel restrictions and quarantines to mitigate the immediate spread of the virus. In addition, most have introduced forms of virus containment strategies, including curfews; suspending religious gatherings; closures of schools, non-essential businesses, and public venues; and banning dining in restaurants. Some countries (Algeria, Saudi Arabia) have increased expenditure on health facilities and equipment.
  • Support to the private sector and households affected by the virus and containment measures are broadly reflected through means to temporarily ease cash constraints, including direct cash transfers, suspension of rent and utilities payments, and loan modifications. In addition, government guarantees have been deployed (UAE) for small- and medium-enterprises (SMEs), and salaries of quarantined or ill migrant workers maintained (Qatar).
  • Easier monetary policy, including interest rate cuts (Bahrain, Kuwait, Qatar, Saudi Arabia, and UAE) and lower reserve requirements (Algeria), and substantial liquidity support to banks, particularly those lending to SMEs and hard-hit sectors (Bahrain, Qatar, Saudi Arabia, and UAE), have complemented fiscal-based measures. There has also been direct support to domestic equity markets (Qatar).

Drastic Decline in Economic Activity in 2020

The weak growth outlook in the MENAP oil exporters reflects the impacts of strong and broad-based containment measures and downward pressures from lower oil production in some countries (Figure 1.3). Uncertainty around these projections is high given the rapid global spread of COVID-19, the extent of its impact, and related policy responses.

  • In GCC countries, growth is projected to contract by 2.7 percent in 2020. Non-oil activity is expected to be a major drag on the near-term outlook, contracting by 4.3 percent this year, a significant downward revision from the 2.3 percent growth projected in the October 2019 Regional Economic Outlook for the Middle East and Central Asia. The service, retail, hospitality and tourism sectors have been particularly hard hit by the spread of COVID-19 and containment measures, raising challenges for those countries where these industries command a large share of output (Bahrain, Qatar, and UAE). Manufacturing has also slowed, and investment plans have been delayed across most of the region. Oil GDP is also expected to slow in 2020, contracting in all countries except for Kuwait, Saudi Arabia, and UAE. Overall, oil GDP is expected to contract by 0.3 percent, though overall oil production is set to fall further with the latest OPEC+ agreement, underscoring downside risks to oil GDP growth.2
  • Growth in non-GCC countries is also set to weaken, with both oil and non-oil GDP contracting markedly in 2020. Oil GDP is projected to contract by 5.9 percent, on lower production, and non-oil GDP by 6 percent, on the widespread effects of the substantial coronavirus outbreak and containment measures. After a steep recession in 2019, Iran’s economy is expected to contract further, declining by 6 percent. Growth is projected to contract by 5.2 percent in Algeria, because of declining oil production capacity and loss of export market share, and by 4.7 percent in Iraq, where mass social protests are disrupting activity and oil production is projected to contract by 2 percent from ongoing security and supply chain constraints.
  • Security and political conditions and economic performance have deteriorated further in Libya. The economy is expected to contract by more than 50 percent in 2020, reversing the recent strong recovery. Conflict will continue to be a major drag on growth in the Yemeni economy as well, which is projected to contract by 3 percent.

Real GDP Growth

(Percent, weighted by PPP)

Sources: National authorities; and IMF staff calculations.

Note: Conflict countries include Iraq, Libya, and Yemen. GCC = Gulf Cooperation Council; PPP = purchasing power parity; REO = Regional Economic Outlook.

Looking ahead, growth in the MENAP oil exporters is expected to rebound in 2021, reaching 4.7 percent. 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.

Vulnerabilities on the Rise

Lower growth and the sharp decline in oil prices are putting significant strains on fiscal and external positions in MENAP oil exporters. The fiscal deficit for the region is expected to deteriorate from 2.8 percent of GDP in 2019 to 10 percent of GDP in 2020, with about two-thirds of this decline (or 4.4 percent of GDP) resulting from crisis related spending and revenue measures (Figure 1.4). Countries with fiscal buffers (Kuwait, Qatar, Saudi Arabia, UAE) are better placed to accommodate rising deficits than those with limited space (Algeria, Bahrain, Iran, Iraq, and Oman).

Fiscal Balances, Oil Revenue and Current Account Balance

(Percent of GDP)

Lower projected hydrocarbon revenue will also weigh on the region’s current account balance, which is expected to tip into a deficit of 5.8 percent of GDP in 2020 from a surplus of 2.7 percent of GDP in 2019. In the GCC, the current account will shift from a surplus of 5.6 percent of GDP in 2019 to a deficit of 3.1 percent of GDP this year (Figure 1.4).

The combination of weaker fiscal and external balances leaves MENAP oil exporters more vulnerable to downside risks, with limited space to combat the effects of the coronavirus. In particular:

  • Buffers are depleting but they remain adequate for certain countries in the region. Net debt (gross debt minus government deposits in the banking sector) has turned positive, reflecting increasing liabilities in particular for non-GCC countries in the region.3 The net debt for the region will stabilize at about 35 percent of GDP in 2021, but is expected to rise in the medium term. In some countries, however, gross and net debt will reach much higher levels, reflecting large financing needs (Algeria, Bahrain, Iraq, and Oman; Figure 1.5).
  • Higher breakeven oil prices. 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 $80 in some countries (Algeria, Bahrain, Iran, and Oman; Figure 1.6).
  • Rigid expenditure structures. Large spending commitments, including public wage bills and pensions in some countries (Algeria, Iraq, Kuwait, and Oman), mounting interest payments (Bahrain, Iran, and Yemen), and other non-discretionary spending has left many countries in the region with rigid expenditure patterns and politically challenging policy choices to reduce these.

Net Public Debt

(percent of GDP)

Sources: National authorities; and IMF staff calculations.

Note: Net debt is calculated as gross debt minus financial assets. MENAP = Middle East, North Africa, Afghanistan, and Pakistan

Fiscal Breakeven Oil Prices

(US$ per barrel)

Sources: National authorities; and IMF staff calculations.

Note: Country abbreviations are International Organization for Standardization country codes.


There is large uncertainty around the outlook and downside risks are significant:

  • A deeper and more protracted spread of COVID-19 globally and in MENAP oil exporters, resulting in additional containment measures, would further weigh on demand, activity, confidence, and commodity prices and result in additional tightening in global financial conditions. As a result, there could be further dislocation in hard-hit sectors—including airlines, real estate, hotels, tourism, and retail, among others—resulting in a further weakening of non-oil growth in several GCC economies. This would put even greater strains on fiscal and external balances and create additional financing risks for countries with low buffers and large financing needs. It would also create a highly challenging environment for low-income countries and those with weak health systems.
  • Prolonged declines in oil prices could result from the combination of a wider COVID-19 outbreak and sustained higher oil supplies, if major producers increase production plans to gain market shares.
  • Deepening conflict would dampen further confidence and investment across the region, preventing recovery from the COVID-19 pandemic.
  • Finally, strains on MENAP oil exporters could increase if the recent trade agreement between the United States and China (Phase 1) leads to diversion of Chinese imports of crude oil and crude oil products from the region.

Policies Must Continue to Meet Crisis Needs

It is crucial that policies continue to mitigate the impacts of the COVID-19 outbreak. The immediate priority should remain on containing the spread of the virus and protecting people’s lives, including by ensuring that health systems, essential services, and social safety nets are adequately prepared to meet the needs of the most vulnerable in society and affected populations, even in countries with more limited policy space and where larger fiscal deficits may arise.

Where policy space is available (Kuwait, Qatar, Saudi Arabia, UAE), governments should continue to pursue a mix of timely and targeted policies and liquidity support to hard-hit sectors and groups. These could include direct cash transfers; strengthening of existing social safety nets; targeted reductions in tariffs and excises on healthcare goods and services; temporary direct subsidies or deferred tax payments to vulnerable businesses to avoid sectoral dislocations (for example, SMEs or hospitality sectors); and expenditure-based incentives to firms (such as accelerated depreciations for investment) to support production of under-supplied goods and services. These and other measures, however, should be temporary to avoid creating lasting burdens on budgets.

For countries with more limited fiscal space, especially those with high debt or large financing needs (Bahrain, Iraq, Oman), scope to respond to the broader economic slowdown may be limited. However, where possible, room could be created within existing envelopes through reprioritizing and postponing non-essential spending; and rationalizing capital expenditure. Such policies should be part of a broader package of gradual medium-term fiscal consolidation with plans to rebuild buffers and ensure fiscal sustainability.

Central banks should stand ready to provide further liquidity to banks, particularly those lending to SMEs, while closely monitoring financial stability. This includes direct liquidity provision, maintaining or increasing credit lines, and providing guarantees to SMEs and state-owned enterprises. In addition, consideration could be given to temporary easing of prudential and regulatory measures, such as adjusting loan-to-deposit ratios, deferred loan payments, and allowing banks to use capital conservation buffers.

International support may be needed for those with limited policy space, including from ongoing conflict. The IMF is already supporting countries through emergency lending facilities and debt relief (for example, Yemen) and stands ready to serve its membership, including by continuing to coordinate and mobilize international support.

Beyond immediate crisis-related measures, economic policy responses should seek to prevent a protracted economic recession with lasting welfare losses to society and ensure that enough stimulus is provided to help revive economic activity after the crisis. Governments with fiscal space could consider delivering temporary stimulus measures, including increased infrastructure spending, to boost aggregate demand where possible, although such measures would be more effective when economic activity resumes.

Ensuring Medium-Term Fiscal Sustainability

The current crisis has brought the region’s vulnerability to oil price volatility into sharp focus and underscored the need for fiscal adjustment over the medium term. Once the virus pandemic abates and after all efforts are deployed to revive economic activity, country authorities should unwind temporary policy measures and resume gradual fiscal consolidation, anchored within revised medium-term fiscal frameworks, to meet pressing challenges from the expected peak in global oil demand (Mirzoev and others 2020) and demographic trends, including the ongoing rise in working age population (see October 2019 Regional Economic Outlook for the Middle East and Central Asia).4

MENAP Oil Exporters: Selected Economic Indicators
Real GDP Growth4.81.20.1-0.8-4.24.7
(Annual change; percent)
Saudi Arabia4.0-
United Arab Emirates4.
Consumer Price Inflation6.
(Year average; percent)
Saudi Arabia2.1-0.92.5-
United Arab Emirates4.02.03.1-1.9-1.01.5
General Gov. Overall Fiscal Balance4.7-5.3-1.2-3.0-11.8-9.2
(Percent of GDP)
Saudi Arabia4.5-9.2-5.9-4.5-12.6-9.0
United Arab Emirates36.1-2.02.0-0.8-11.1-7.1
Current Account Balance10.
(Percent of GDP)
Saudi Arabia13.
United Arab Emirates9.87.310.
Sources: National authorities; and IMF staff estimates and projections.Note: Variables reported on a fiscal year basis for Iran (March 21/March 20).

Central government.

Central government and National Development Fund including Targeted Subsidy Organization.

Consolidated accounts of the federal government and the emirates Abu Dhabi, Dubai, and Sharjah.

Sources: National authorities; and IMF staff estimates and projections.Note: Variables reported on a fiscal year basis for Iran (March 21/March 20).

Central government.

Central government and National Development Fund including Targeted Subsidy Organization.

Consolidated accounts of the federal government and the emirates Abu Dhabi, Dubai, and Sharjah.


MENAP oil exporters comprise Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Yemen.


Growth projections are based on data as of April 3, 2020 and therefore do not account for the OPEC+ agreement reached on April 9, 2020.


This measure does not include assets in sovereign wealth funds in the region, which remain very large despite a significant decline since 2014.


Mirzoev, Tokhir N., Ling Zhu, Yang Yang, Andrea Pescatori, Akito Matsumoto, Tim Callen, and others. 2020. The Future of Oil and Fiscal Sustainability in the GCC Region. IMF Departmental Paper 20/01, International Monetary Fund, Washington, DC.

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