Soaring oil prices are propelling growth in the Middle East and central Asia but oil producers should not waste the opportunity to spend the bonanza on creating jobs and developing their economies, the IMF said Monday.
"High oil prices are good for growth but the question is what are they going to do with the oil revenues?" said Mohsin Khan, the IMF's Middle East and Central Asia department director, after launching a new report in Beirut.
"What we are saying is: yes, you should spend the money but on projects that could yield jobs for people in their country and in ways that foster long term growth," he told Reuters.
In its Regional Economic Outlook, the International Monetary Fund said economic growth in the Middle East and Central Asia had increased from an average 4.5 percent in 1999-2002 to above 7 percent in 2003-2005 on the back of soaring oil prices.
It estimates that three years of rising oil prices have generated extra oil export receipts worth an average 17.5 percent of oil-producing countries' GDP each year.
Those countries have so far used their extra oil revenue prudently, spending less that 30 percent of it on average, but they should now boost spending to develop their economies and offset the negative impact of rising oil prices on the world economy.
"Prospects of a period of high oil prices present a unique opportunity for Middle East and Central Asian oil-exporting countries to address the challenges of lifting growth and reducing unemployment," the annual report said.
"High oil prices should not prevent governments in the region from moving ahead vigorously with needed market-based reforms including privatising, deregulation and liberalisation."
BLESSING OR CURSE?
Oil prices have peaked in recent years as world demand booms, but the IMF report said they remained smaller in real terms than during the oil shocks of 1970s and 1980s.
Back then, oil-producing countries spent their petro-dollar bonanza on massive construction projects that depended on imports of materials, equipment and skilled labour but did not create jobs or steady revenue-streams.
This time, the IMF says, they are not spending enough. Higher spending could help to offset the strain of high oil prices on the rest of the world.
Khan predicted oil prices would continue to hover in the $55-60 a barrel region at least for the next two years, though prices at the petrol pump would climb faster since refining capacity was unlikely to grow fast enough to meet world demand.
"I don't see major refineries being built. No one wants one in their back yard so gasoline prices will continue to rise," he said.
For their part, Khan advised the region's middle- and low- income countries to create investment opportunities to attract the extra petro-dollars.
"The emerging market countries can create opportunities for the private sector to invest. There is an awful lot of money in private hands sloshing around looking for a home," Khan said.
"In Lebanon, the Saudis invest in real estate because that's what is on offer, but when there is privatisation you will see things happen. Governments in this region own all sorts of strange things they have no business owning."
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