Georgieva to Arabic: Iran's War Redraws the Map of the Gulf Economy.. and Saudi Arabia Continues to Grow

Listen to the article, the audio text is automatically generated by an automated system.

Kristalina Georgieva, the Managing Director of the International Monetary Fund, confirmed that the main challenge facing the economies of the region currently is to regain the momentum they had before the war, pointing to the importance of continuing to diversify economies, the prudent use of financial capacities, and enhancing cooperation among the countries in the region.

Georgieva stated in an interview with "Al Arabiya Business" that previous investments, sound economic policies, and fiscal responsibility have formed sources of strength and resilience for the Gulf Cooperation Council countries, considering that building on these foundations and continuing economic diversification will support the region's ability to face shocks.

The IMF praises the robustness of the Gulf countries' economies and their ability to face challenges.

She pointed out that Gulf countries have taken measures in recent years to enhance job opportunities and develop alternative oil transport routes away from the Gulf, emphasizing that investments in these routes remain important even if the Strait of Hormuz is reopened and not closed in the future.

She added that the joint cooperation witnessed in the region to enhance the ability to face shocks provides new momentum for collective action, emphasizing that continuing to build on economic fundamentals and diversifying economic activity serves the region, especially as several of its countries record positive growth outside the oil and gas sectors.

Regarding Saudi growth forecasts, Georgieva stated that the IMF aligns with Saudi estimates regarding the recovery and growth trajectory for the coming year, pointing to three main factors that will support this path.

She explained that the first factor is the recovery of production and the increase in oil exports, even if the war continues, with the importance of continuing to work on alternative routes to deliver oil to partners and exporters.

The second factor is the expectation of continued high oil prices even if the war ends, due to the fact that oil reserves have been drawn down during the crisis, while the world needs time to rebuild them, in addition to the ongoing repercussions of the closure of the Strait of Hormuz.

Georgieva added that the third factor is Saudi Arabia's continued efforts to diversify its economy and enhance its vitality.

The IMF stated that it does not yet know the details of how the figures in the Saudi estimates were reached, but it agrees with the general trend and believes there is significant momentum and development in the Saudi economy.

Regarding the impact of energy prices on oil-exporting and oil-importing countries, Georgieva explained that the repercussions of the war vary from one country to another.

She noted that Iraq is among the most affected countries, having lost its entire oil production, while Bahrain and Kuwait have also been significantly affected for different reasons.

She added that other countries like Jordan and Egypt have felt significant pressures as they are oil-importing countries, pointing out that countries in the region have taken steps over the past years to build safety margins and strengthen the fundamentals of their economies, which helps them better cope with shocks.

She emphasized that the focus should be on areas of strength while also being prepared for more difficult periods.

Regarding the final review of Egypt's program with the International Monetary Fund, Georgieva stated that the deadline for completing the program is mid-December, and the Fund plans to send its mission in line with this deadline to inform the Fund's management in a timely manner.

She confirmed that decisions related to Egypt's economic structure remain the sovereign rights of the state, noting that what the Fund is calling for and supporting is to provide greater space for the private sector.

She explained that the private sector is more dynamic and capable of adapting to shocks, and it helps to enhance the resilience of the economy, adding that there is greater room in Egypt to expand its role.

Regarding the possibility of Egypt needing a new program with the Fund, Georgieva said that the current focus is on completing the existing program, praising Egypt's role and considering that the program has been significantly positive for the Egyptian economy.

On the global economy front, Georgieva stated that the rise in energy prices due to the Iran war has led to price pressures resulting from shocks in the energy sector, which has contributed in some cases to increased inflation.

She added that these pressures could push central banks to tighten monetary policy to control inflation, which would increase the cost of servicing high debt globally and lead to tighter financial conditions.

She pointed out that oil-importing countries, particularly those with insufficient financial space, will be among the most affected, along with a large number of low-income and fragile countries and emerging markets that need to borrow.

She stated that emerging markets have recently worked on reducing yield spreads and narrowing their margins, which provides greater room for growth when these pressures subside.

Georgieva explained that the global economy has been negatively impacted by energy shocks, but this effect has been partially offset by the momentum associated with artificial intelligence.

She said that the global economy is currently facing two forces moving in opposite directions: energy shocks that negatively affect economic activity, and the enthusiasm and investments related to artificial intelligence that support growth.

Regarding bond markets and rising sovereign debts, Georgieva stated that what is happening in the markets reflects economic fundamentals, explaining that rising inflation and energy shocks are driving interest rates up, and consequently, bond yields are increasing.

She added that debt levels have risen significantly since the COVID-19 pandemic, noting that governments borrowed to cope with shocks during the pandemic, and then did not take sufficient steps to reduce debt during periods of improvement, before returning to borrowing with the shock of the Ukraine war and energy crises.

She emphasized that what is needed now is for countries to take responsibility and put plans in place to strengthen fiscal policy in the medium and long term.

She warned that the combination of high debt levels, reliance on debt and equity financing, and enthusiasm related to artificial intelligence could make financing more difficult and costly, especially amid tightening economic and financial conditions.

Regarding the debts of artificial intelligence companies, Georgieva stated that there are currently no concerns about them, explaining that these companies are borrowing but are also making profits, and that the expansion of data centers has become a reality in the global economy.

However, it warned that the concern lies in the rising expectations of productivity increases; if these expectations are not actually met, it could reflect on the markets.

It added that the occurrence of other incidents, such as artificial intelligence going out of human control, could also open a wide door for discussion about the risks associated with technology.

It emphasized the necessity of addressing the matter from two sides: the first being the establishment of controls and safety barriers for artificial intelligence to enhance trust in it, and the second being attention to the financing mechanisms of the sector, ensuring that profit expectations and the mix of debt and equity support the sustainability of investment.