Oil-exporting countries are likely to see losses of more than $230bn in crude revenue this year due to oil price shocks, according to a report.
The annual Regional Economic Outlook: Middle East and Central Asia update from the International Monetary Fund (IMF) said oil prices have not been this low since 2001.
"Oil prices at these levels could result in more than $230bn in lost annual revenue across MENAP [Middle East, North Africa, Afghanistan and Pakistan] oil exporters, compared with October projections, placing significant strains on fiscal and external balances," said the report's authors.
Sinking domestic and external demand, falling consumer confidence, tightening financial conditions, and disruption in production and global supply chains would add to the economic fallout, the report said.
It said oil prices are down 60% since the beginning of the year as the coronavirus pandemic decimated oil demand though OPEC, and its allies’ agreement to curb crude output starting in May could support prices.
The pact will see cuts of nearly 10m barrels per day in May and June and could be complemented by further production cuts by oil-exporting G20 economies.
Low crude prices and the coronavirus pandemic along with stimulus packages are likely to strain MENA budgets.
"A more severe and protracted Covid-19 pandemic in the region or in its major trading partners could cause a prolonged production disruption, wider supply chain spillover, larger collapse in confidence and demand, and further deterioration in financial conditions," the IMF warned.
It added mass social protests and ongoing security and supply chain constraints were likely to force oil production in Iraq to shrink by 2%.
Meanwhile, Bahrain is the latest country in the region to announce lower public spending, pledging to cut spending by ministries and government agencies by 30%, according to Reuters.
The Gulf island state said it will reschedule various construction and consulting projects to make way for other spending needs.
The Bahraini cabinet also made amendments to the country’s labour code which will allow it to change allowances and benefits for public sector employees.
Last month, Saudi Arabia cut almost 5% of its 2020 budget while Oman has reduced spending by over $1bn.
Reuters also reported Dubai has told government agencies to reduce spending as a precautionary measure.
Departments were told to halt new hiring and to cut administrative and general expenses by at least 20% as well as suspending all construction projects that have not yet started.