Mideast may lose $270B of income

IMF outlook for contraction amid coronavirus, oil market turmoil.

DUBAI, UNITED ARAB EMIRATES

The Middle East’s energy producers — are expected to earn $270 billion less in oil revenue compared to last year as the region’s economic heavyweight, Saudi Arabia, sinks deeper into recession amid the coronavirus pandemic, according to the International Monetary Fund’s outlook released Monday.

The international lender expects an overall economic contraction of 7.3% in Mideast oil exporting countries this year due to hits from the coronavirus outbreak and oil market turmoil. The contraction is 2% greater than the IMF’s initial projections in mid-April.

“We are in a year like no other and therefore developments are very fast and coping with them is challenging for everyone,” Jihad Azour, director of the IMF’s Middle East and Central Asia department, told The Associated Press.

The IMF had projected in April that Saudi Arabia’s economy would contract by about 2.3% this year. It has since revised that figure downward, saying the kingdom stands to see economic growth shrink by 6.8% before climbing to around 3% growth next year.

In addition to lower crude prices and cuts to production, Saudi Arabia stands to lose billions of dollars in revenue because the Islamic pilgrimage to Mecca is suspended due to the pandemic.

For the first time in Saudi history, the hajj pilgrimage this month, which drew 2.5 million people last year, will not include pilgrims from outside the kingdom.

To raise state revenue, Saudi Arabia tripled taxes on basic goods and services this month, increasing value-added tax to 15%.

Saudi Arabia, the world’s largest oil exporter, and other major oil producing countries are likely to increase their output in August, as coronavirus lockdowns ease and demand begins to rise again.

The Organization of the Petroleum Exporting Countries, Russia and other producers are expected to modestly ease the record production cuts that they agreed to in April and later extended through July. A committee of key officials from OPEC and Russia will meet Wednesday to discuss their approach to the market.

The oil producing countries want to make sure that they maintain or increase their share of the recovering market.

But analysts say that the actions by OPEC and its allies could be outweighed by the impact of the pandemic on demand.