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Liquidity pressures in Arab oil-exporting countries expected to ease in 2017 and 2018

In 2017 and 2018, liquidity pressures in the Arab oil-exporting countries are expected to ease in light of the anticipated rise in oil prices, which will support the level of deposits and provide an opportunity to channel greater credit to non-oil sectors to increase output and economic diversification levels, the Arab Monetary Fund (AMF) predicted in its latest report, released on Wednesday.

''This trend will partially offset the contractionary impact resulted from the tightening of monetary policy in some Arab countries that adopt a fixed exchange rate regime against the dollar,'' said the Arab Economic Outlook (AEO).

''In the oil-importing Arab countries it is expected that some of these countries will continue to be affected by the tight conditions of domestic and external financing, especially in the light of the expected increase in US interest rates and the relatively high interest rates levels in some of these countries. The improvement in monetary conditions in this group of countries will continue to depend on the increase in external demand levels, which will support net foreign assets, help to provide domestic credit and reduce interest rates, as well as containing pressures on the foreign exchange markets,'' it said.

Public spending, it noted, continued to decline by six per cent compared to nine per cent for the decline recorded in 2015 reflecting the continuation of the fiscal discipline reforms efforts. The increase in public spending in other Arab oil-exporting countries has limited the declining trend of public spending at the level of Arab countries as a group. As a result, the consolidated budget deficit of Arab countries as a group declined to 10.3 per cent of the GDP compared to 11.4 per cent of the GDP in 2015.

''In light of the expected recovery of oil prices, the anticipated improvement in economic conditions in many Arab countries and the continuation of the gradual implementation of fiscal reforms in 2017 and 2018, the consolidated budget deficit of Arab countries as a group is expected to decline to 6.3 per cent in 2017 and 5.1 per cent in 2018.'' As for the external sector, the report expects that during the year 2017, the deficit in the current account of Arab countries as a group will shrink to about $63 billion, representing 2.5 per cent of GDP. This is due to the expected improvement in international oil prices, commodities and minerals. In addition to the expected increase in tourism proceeds in light of the improved internal conditions and efforts exerted in some Arab countries to encourage tourism sector.

With regard to 2018, it is expected that in light of the continued gradual improvement of international oil prices, the deficit in the Arab countries' current account as a group will be about $27.6 billion, representing about one per cent of GDP.

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