Call for Arab emergency plan

Arab countries need to draw up an emergency plan to deal with a state of uncertainty shrouding their economies because of the current political unrest and global slowdown, the region’s banking union has said.

The Beirut-based Union of Arab Banks (UAB), which groups 470 Arab banks, said many regional nations are already suffering from high debt, slow growth, lower government revenue and a slowdown in capital flow into the region.

It said foreign direct investment (FDI) into the Arab region would plunge in 2011 for the second year running and could remain low in the coming years because of regional turmoil and the western debt problem, which could drag on.

“There is an urgent need for the Arab countries to devise an emergency economic plan to mitigate the effects of regional political turbulence and the debt crisis in the US and the European Union,” it said.

“Many Arab countries are already suffering from large public debt that is higher than in most other regional groups while FDI into the Arab world is projected to continue its decline for the second consecutive year in 2011.”

It said Arab nations which have been through political tumult have started to suffer from a sharp fall in government revenue because of such events, adding that this was coupled with higher social spending.

Some countries are also reeling under heavy pressures on their balance of payments due to lower investment flow and tourism earnings as a result of the current unrest, the report said, adding that the situation is aggravated by the fact that foreign investors are also withdrawing their funds from unrest-hit states.

“While many Arab nations have taken measures to face such developments, confidence in the Arab economies and stock markets has remained low and it could take a long time before it is restored to normal,” the report said.

“The political unrest in the region is adversely affecting local economies and markets and have created a state of uncertainty…this situation is aggravated by the ambiguity in economic policies to be adopted by the new governments in the countries which are witnessing political change,” it added.

“The western debt crisis is putting further pressure on regional economies given their high exposure to the US and the EU and the fact that the debt crisis in those countries could drag on…this makes it imperative on Arab countries to embark on an economic emergency plan with the aim of reducing the impact of the present local turmoil, the western debt problem and future global crises.”

Citing the IMF, the report said most Arab nations are suffering from high public debt because of excessive borrowing to fund local projects and support their budgets and balances of payments.

It put the debt in the UAE at 21 per cent of GDP at the end of 2010 and expected it to fall back to 16.3 per cent in 2011 and 14.5 per cent in 2012.

In Saudi Arabia, the debt was as low as 10 per cent at the end of 2010 after it topped the GDP in late 1999 because of low oil prices. The report expected the level to slump to 8.3 per cent in 2011 and 7.1 per cent in 2012.

The debt stood at 10.5 per cent in Kuwait and is projected to shrink to 7.9 per cent in 2011 and 7.3 per cent in 2013.

The debt stood at as high as 73 per cent in Egypt and is expected to rise to 74.8 per cent this year before slipping to 73.7 per cent in 2012.

Jordan is suffering from a debt of around 60.5 per cent of GDP and the level is projected to rise to 61.5 per cent in 2011 and 62.1 per cent in 2012.

In unrest-battered Syria, the debt is estimated at 27.4 per cent and could remain unchanged in 2011 before falling to 21.6 per cent in 2012.

Lebanon’s debt was put at as high as 136.6 per cent of GDP and could recede to around 133.8 per cent in 2011 before edging up to 134.1 per cent in 2012.

Conflict-torn Iraq is also suffering from a large debt, which stood at around 112.3 per cent in 2010. But the report expected it to tumble to nearly 38 per cent at the end of 2011 and 33.6 per cent at the end of 2012.

Yemen’s debt stood at 40.6 per cent in 2010 and is expected to swell to nearly 42 per cent in 2011 and 44.3 per cent in 2012.

As for FDI, UAB quoted a recent report by the Kuwaiti-based Inter-Arab Investment Guarantee Corporation showing FDI flow into the Arab region could dip by at least 10 per cent to $50-55 billion in 2011.

“Although it is difficult to predict the precise impact of the current unrest in the MENA region on capital flow into the Arab World, preliminary estimates show that direct investment in the Arab countries is expected to decline by between 10 and 15 per cent this year,” said IAIGC, a key Arab League establishment.

“This is because the current situation has thrown the region into a state of uncertainty in the short term although many world companies still view the investment climate in rich Arab region, mainly Gulf nations, as attractive….one major factor is the fact that the Arab region controls a gigantic oil wealth, the value of which is estimated at over $40 trillion, more than the market capitalization of all companies listed in global bourses.”

After a brief recovery in the wake of the 2008 global fiscal distress, FDI flow into the Arab world dipped by nearly 23 per cent in 2010 mainly because of a sharp decline in investment in Saudi Arabia, the report said.

It showed FDI flow into 18 Arab nations that provided investment data plunged by nearly 23 per cent to $64.3 billion in 2010 from around $83.9 billion in 2009.

It said Saudi Arabia, by far the largest Arab FDI recipient and the world’s top oil exporter, was the main victim as investment into the Kingdom dived by nearly 41 per cent to $21.6 billion from $35 billion in 2009. It attributed the decline to the shelving of some giant hydrocarbon projects in Saudi Arabia, mainly those which had been planned as joint ventures with foreign partners.

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