CHAPTER ONE • OFID MEMBER COUNTRIES IN 2018
Global economic growth was relatively steady in 2018 compared with the year before
the ongoing agreement of OPEC and non-OPEC producers to limit produc- tion. The effect of these two factors led to lower investment in the non-oil economy (that accounts for the majority of activity). Annual average inflation accelerated 30% in 2018 from around 10% the year before, driven by supply and exchange rate uncertainties arising from the effect of sanctions. In turn, this pushed-up prices for most goods and services. Meanwhile, the fiscal deficit widened in 2018 to 3.2% of GDP as oil revenue fell and as demand for govern- ment supplied services remained strong. The decrease in oil production resulted in a sharp drop in oil exports, which in combination with sustained import demand, helped narrow the current account surplus to an estimated 1% of GDP in 2018 compared to 2.2% in 2017.
Iraq’s economy is gradually improving following the economic strains of recent years. The challenging task of rebuilding infrastructure and creating employment opportunities was supported by the February 2018 International Conference for the Reconstruction of Iraq. This helped boost real growth 1.5% last year. Despite costs related to elections held in May, annual average inflation remained low during 2018 at 2% reflecting the effect of the exchange rate peg, weak domestic demand, and low levels of credit to the economy. The overall fiscal balance is estimated to have moved into a surplus of around 6% of GDP mainly due to the effect of higher oil prices and IMF / World Bank fiscal consolidation reforms, adopted to contain recurrent expenditures, despite still high humani- tarian and security spending. Meanwhile, the current account surplus widened to around 7% of GDP from 2% in 2016 as the effect of higher oil prices more than offset the rise in the import bill from reconstruction and security-related goods.
The rising oil price environment helped bolster Kuwait’s already strong economic and financial position in 20182. Large financial buffers, low debt and a
2 Kuwait’s fiscal year runs from April to March, but this summary uses calendar years for ease of comparison.
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sound financial sector helped underpin real growth estimated at 2.3% in 2018, reversing a contraction the year before brought about by a fall in oil production (and the indirect effect of low oil prices). The fiscal position was reinforced by higher oil prices resulting in the fiscal surplus widening to around 12% of GDP, adding to Kuwait’s financial buffers. Despite this positive development, the authorities remain committed to implementing a comprehensive reform strategy to manage spending and foster more private investment. Meanwhile, average annual inflation remained comfortable at 1%, a slightly slower rate compared to the year before, due to relatively subdued domestic demand and the support provided by the Dinar’s peg to the US dollar. In comparison, the current account surplus widened to over 11% of GDP, driven by the effect of higher oil prices and despite robust import demand.
The political and security situation in Libya remained uncertain last year. Oil production dropped significantly mid-year due to damaged oil infrastruc- ture and reservoirs. A return in the second half of the year to higher oil output, on the supply side, and an increase in government expenditures and investment on the demand side, pushed real growth up to an estimated 11% (the large rise was due to the low base effect). Inflation remained high at nearly 30% reflecting market disruptions due to supply shortages of goods and services, along with a still active parallel currency exchange market. Public finances improved slightly, reflected in the fiscal deficit narrowing to around 25% of GDP in 2018. However, the inflexibility of current expenditures and volatile oil revenues maintained a severely stressed fiscal stance reflected in the challenge of managing fiscal spending pressures while restoring and improving basic public services. Despite the effect of higher oil prices, the disruption to oil production and sustained demand for consumption- driven imports undermined the current account, leading to the surplus narrow- ing to an estimated 2% of GDP from over 8% in 2017.
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