The Institute of International Finance expected that the increase in global oil prices will raise inflationary pressure and weigh on the fiscal and current account balances of oil-importing economies in the Middle East & North Africa (MENA) region in 2018. Also, it anticipated the lack of deeper reforms and heightened domestic socioeconomic tensions and geopolitical risks to weigh on economic activity in the region. It added that the disruption of trade routes due to the Syrian and Iraqi conflicts has reduced the potential output of Jordan and Lebanon. It said that the elevated government debt level in these economies constrains the ability of authorities to pursue countercyclical fiscal policies and to finance priority spending, such as infrastructure.

First, the IIF indicated that the increase in oil prices would raise inflationary pressure in MENA oil-importing countries, given the elevated weight of fuel and energy in their CPI baskets. It added that higher oil prices could lead to a rise in the cost of production of goods and services due to higher prices of energy inputs. Second, it said that higher oil prices will widen the current account deficits of MENA oil importers, as it would increase their import bills. It expected that an increase in average oil prices from $54 p/b in 2017 to $72 p/b in 2018 would widen the current account deficit by 2.9 percentage points of GDP in Lebanon, by 2.7 percentage points of GDP in Jordan, by 2.6 percentage points of GDP in Morocco, by 1.7 percentage points of GDP in Egypt and by 1.5 percentage points of GDP in Tunisia. Third, it pointed out that higher oil prices would widen the fiscal deficits of MENA oil-importing economies due to higher energy subsidies.

However, the IIF anticipated that higher oil prices could indirectly increase growth in MENA oil-importing economies beyond the near term. It considered that this would support economic activity in Gulf Cooperation Council (GCC) countries, which would benefit oil importers through bilateral trade, tourism, remittance inflows, grants and FDI inflows from these economies. But it said that higher oil prices would need to persist in order to significantly increase growth in the GCC region and have potential positive spillovers to oil importers.
Source: Institute of International Finance