Thursday Apr 18, 2019 16:52

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IMF’s Christine Lagarde: Oil Exporters Have Not Fully Recovered From 2014 Shock

(Monday, February 11, 2019) 15:37

Oil exporters have not fully recovered from the dramatic oil price shock of 2014, the head of the International Monetary Fund said on Saturday, and she cautioned against spending money on "white elephant projects."

"With revenues down, fiscal deficits are only slowly declining, despite significant reforms on both the spending and revenue sides, including the introduction of VAT and excise taxes," Christine Lagarde, told a conference in Dubai, CNBC reported.

"This has led to a sharp increase in public debt, from 13% of GDP in 2013 to 33% in 2018."

Lagarde said uncertainty in the growth outlook for oil exporters also reflected moves by countries to shift rapidly toward renewable energy over the next few decades, in line with the Paris climate change pact.

She said there was scope to improve fiscal frameworks in the Middle East with some of the weaknesses emanating from "short-termism and insufficient credibility."

Lagarde said governments in the region might be tempted to favor white elephant projects instead of investment in people and productive potential.

She said across the region, it is common for sovereign wealth funds to directly finance projects, bypassing the normal budget process, while state-owned enterprises in some countries had high levels of borrowing, outside the budget.

She said oil exporters could follow the example of other resource-rich countries such as Chile and Norway in using fiscal rules to protect priorities, such as social spending, from commodity price volatility.

Among oil importers in the Middle East region, growth had picked up, but it was still below the level before the global financial crisis, she said.

Speaking about the global economy, Lagarde said the IMF was not seeing a global recession on the horizon, but risks were rising for global growth due to trade tensions and tightening financial conditions.

The IMF's revised forecast sees the global economy growing by 3.5% this year, 0.2%age points below what it expected in October.

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