The old adage of not “putting all your eggs in one basket” applies to individual investors in the financial markets as well as countries depending on a one-commodity-export such as the Middle Eastern countries. The issue for these countries is not only bad economics but also political suicide to depend on an exhaustible resource without parallel non-oil financial and economic trade markets whether domestic or international. Japan’s deflationary economy arisen from an export oriented GDP would be like a walk in the park compared with the disastrous consequences of current Middle Eastern politics and economic policies.
Below is a partial executive summary of the Annual Meeting of Arab Ministers of Finance April 2016 Manama, Bahrain
Prepared by Staff of the International Monetary Fund
EXECUTIVE SUMMARY FROM THE INTERNATIONAL MONETAR FUND (IMF)
“Despite their diversity in size, demographics and wealth, most oil-exporting Arab countries face similar challenges to create jobs and foster more inclusive growth. The current environment of likely durable low oil prices has exacerbated these challenges.
The non-oil private sector remains relatively small and, consequently, has been only a limited source of growth and employment. While some countries have made more headway than others in diversifying their economies, the energy sector, typically highly capital intensive remains dominant in many economies. However, it creates few jobs directly, while oil revenue is often used to finance an oversized public sector. Still, the employment situation varies greatly across countries: some GCC economies rely on foreign labor to fill private-sector jobs while other Arab oil exporters need to meet the needs of a fast-growing domestic labor force.
Because oil is an exhaustible resource, new sectors need to be developed so they can take over as the oil and gas industry dwindles. While some countries have ample reserves, hydrocarbon resources in a number of Arab countries could be depleted in the foreseeable future. However, even non-oil activities in many oil-exporting Arab countries are to some extent dependent on funding from oil revenues. The challenge therefore is to grow truly self-sufficient non-oil sectors that will provide a sustainable source of growth and employment even when oil resources are depleted. Moreover, even countries with large proven reserves need to save a larger share of their current oil income to promote greater intergenerational equity.
Over-reliance on oil also exacerbates macroeconomic volatility. When oil prices drop, as is presently the case, the related decline in fiscal revenue often requires cuts in public spending, which dampen growth in the non-oil sector and strain the sustainability of public employment.
Greater economic diversification would unlock job-creating growth, increase resilience to oil price volatility and improve prospects for future generations. It would also broaden the base for government revenue thereby reducing the reliance on oil and making the economy more resilient to oil price shocks”.
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