The International Monetary Fund (IMF) recently released a research paper that delves into the changes in inflation rates in Gulf countries between 2019 and 2022. The paper examines the reasons behind the rise in inflation over the past two years, attributing it to heavy reliance on imports and increased consumer spending due to the surge in oil prices during that period.
According to the report, some Gulf countries experienced lower increases in inflation compared to global averages, thanks to government support. The paper specifically analyzes three sectors – food, housing services, and fuel – and assesses the impact of the global inflation wave on these sectors in Gulf countries.
One of the primary factors contributing to high inflation rates in the Gulf countries is their heavy dependence on imports. This reliance has become even more significant in light of the global markets grappling with increased commodity prices due to geopolitical tensions and the war in Ukraine, which have disrupted supply chains. As a result, the Gulf countries’ economies have become twice as dependent on imports as advanced economies.
The IMF report highlights Kuwait as the Gulf country with the lowest fuel prices and the second lowest in the Arab world. Kuwait’s fuel prices experienced a slight decrease of approximately 1% relative to global levels between 2019 and 2022. In general, the rate of change in fuel prices in all Arab countries monitored by the report was lower than the global average, except for the UAE.
Kuwait’s annual imports account for 43% of the country’s gross domestic product (GDP), placing it third among the Gulf countries. The UAE tops the list with imports equivalent to 80% of its economy, followed by Bahrain at 68%. The Sultanate of Oman ranks fourth with imports representing 42% of its GDP. Qatar and Saudi Arabia have the lowest ratios of imports to GDP, standing at 38% and 29%, respectively.
However, when considering the index of the ratio of imports to the volume of trade exchange (value of imports compared to the value of exports), Kuwait takes the lead among the Gulf countries. Kuwait’s percentage ranges between 41% and 46%, representing the highest among its counterparts. On the other hand, Qatar has the lowest ratio in this regard.
The contribution of housing and food services to the increase in inflation rates varied across Gulf countries. Kuwait recorded the highest contribution of food price increases among all GCC countries, with a continuous rise observed between 2020 and 2022. In Oman, food price increases ranked second after Kuwait in terms of their contribution to inflation.
In terms of housing services, Qatar took the lead in terms of its contribution to price increases and overall inflation rates, with Kuwait ranking second. The contribution of food price increases decreased in the rest of the Gulf countries compared to Kuwait. Saudi Arabia, in particular, experienced a gradual decrease in food price inflation.
In conclusion, the IMF research paper sheds light on the factors driving inflation rates in Gulf countries. The heavy reliance on imports and increased consumer spending, coupled with the rise in oil prices, have contributed to the inflationary pressures. Understanding these dynamics and their implications is crucial for policymakers and businesses operating in the region.