Iraq is planning painful cuts in social benefits, on which millions of public servants in the country rely. Saudi Arabia is likely to be forced to postpone mega-projects on its territory.
Egypt and Lebanon face a blow as their citizens, earning money in the affluent Arab monarchies of the Gulf, send home less and less much-needed dollars to Cairo and Beirut to help keep their fragile economies afloat. The blame lies in the historic collapse of oil prices against the backdrop of the global coronavirus pandemic Covid-19, Associated Press (AR) reports today, April 27.
Unprecedented decline in the value of the main product on the export of Arab monarchies has affected the entire Middle East, as countries, dependent on oil, are trying to compensate for losses from the main source of replenishment of the state treasury. And all this at a time when some of them already face the threat of explosive social unrest. The economy of all oil exporters from the Arab Gulf countries is expected to shrink by 5% this year, including Iraq, where the situation seems most alarming. While some Gulf countries can count on their currency reserves, no other country in the region has such scary circumstances as Iraq, where oil sales finance 90% of the government budget, AR notes.
In recent months, there have been massive protests in Iraq, with citizens dissatisfied with governance and widespread corruption and high unemployment. The bloody riots could resume at any time. Expected cuts in government spending will only exacerbate the situation of the population in the country, which ranks second after Saudi Arabia in OPEC in terms of proven liquid hydrocarbon reserves. At Tahrir Square in central Baghdad, protesters are still conducting sit-down pickets.
“With summer coming, the conditions for the perfect storm for the Iraqi government are being created”, – said Sajjad Jiyad, a local political analyst.
Currently, oil is being sold for about $20 a barrel. Robin Mills, general manager of Qamar Energy from Dubai, said May and June are expected to be particularly difficult, as that would be when the problem of storing excess oil could grow as global demand falls.
“It’s still early and no one has reached the stage where (government) budgets are at risk of being disrupted”, – says Mills. – “But it’s inevitable”, says Mills. – “And Iraq is likely to break through first.”
Unemployment rates and government deficits will rise sharply in the Middle East and North Africa as the region already experiences an economic downturn caused by the spread of Covid-19. Additional challenges for the Arab and other countries in the region are related to the ongoing armed conflicts and falling oil prices – the main item of income of local governments, said in a report published on April 14 of the International Monetary Fund (IMF).
According to the forecast of an international financial institution headquartered in Washington, almost all countries in the Middle East and North Africa will face significant economic contraction, “as they lose hundreds of billions of dollars in revenue.”
“The Covid-19 pandemic and the sharp fall in oil prices are causing significant economic turmoil in the region. The consequences could be long-lasting”, the IMF report said. – “Although there is considerable uncertainty about the depth and duration of the crisis, the pandemic will exacerbate unemployment in the region, high domestic and external debt.”
The Fund forecasts a combined 3.3 percent decline in the Middle East and North Africa in 2020, the largest decline in four decades. Shocks of the virus and low oil prices will deprive the economies of the Arab world of $ 323 billion in revenue. The debt of Arab governments will increase by 15%, or $190 billion, this year, reaching a total of $1.46 trillion.