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Dubai: Oil exporting countries of the Middle East and Central Asia region have embarked on a massive programme of investing in infrastructure, which according to the IMF is the right way to spend the oil wealth in the context of the rising surpluses.
"With higher world oil prices boosting export incomes even further, the narrowing of the region's external surpluses will be more modest than previously envisaged.
"Nevertheless, the countries' latest budget plans imply a large increase in spending, which will provide welcome support to global demand," the IMF said in its regional outlook.
The region's oil and gas export receipts are likely to amount to $940 billion in 2008, close to $200 billion more than was envisaged late last year.
For the most part, this reflects higher world oil prices, which are now projected to average over $95 a barrel (based on prevailing futures market prices), compared with $75 in October 2007.
This represents an almost five-fold increase from the annual levels at the start of the decade. On the fiscal side, government revenue from oil and gas is now estimated at close to $740 billion in 2008, about $160 billion more than expected a few months ago.
Higher income is translating into rapid import growth. Reflecting the major investment programmes as well as an expansion in consumer spending, the region's share of global imports of goods and services has risen from under 2 per cent in 2001 to almost 4 per cent (projected) in 2008.
Vat
Difficult to implement
Implementation of value added tax (VAT) could be difficult for most Gulf governments in the immediate future as most of them are enjoying large fiscal surpluses and are facing high domestic inflation, according to Mohsin Khan, Regional Director of IMF's Middle East and Central Asia Department.
During 2004-08, the region's cumulative overall fiscal surplus is estimated to touch $1 trillion, while the cumulative external current account surplus could be as high as $1.4 trillion.
"With growing external and fiscal surpluses, implementation of VAT could become a very sensitive issue. Although VAT is cost neutral for Gulf residents, it will be difficult to convince people about its merits when the cost of living is rising," said Khan.
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