GCC assets may double in 5 years

Strong oil prices could nearly double the foreign assets of Gulf hydrocarbon producers over the next five years following a sharp rise in the assets in the past decade.

Forecasts by the International Monetary Fund (IMF) showed many members of the six-nation Gulf Cooperation Council (GCC) could revert to financial deficits after a couple of years but it said that the assets would still rise during that period.

In a study on the 31-year-old Gulf alliance, the Washington-based IMF said the GCC’s total foreign assets could exceed $three trillion by 2017 compared with a projected $1.9 trillion at the end of 2012. In the downside scenario, the assets could swell to around $2.2 trillion at the end of that year, it said.

The IMF gave no figures on the GCC’s current assets but estimated by the Institute for International Finance (IIF) showed they stood at $1.6 trillion at the end of 2011.

“The impact on public external assets is primarily driven by the accumulation of current account balances over the medium term. Since the majority of the GCC countries either remain in surplus or only record a deficit beyond 2015 (Oman being the exception), the GCC’s total public external assets increase even in the downside scenario,”
IMF said.

“The accumulation of assets would, however, slow down significantly and fall in some countries. Under the baseline scenario, the GCC’s total public external assets are projected to reach over $three trillion by 2017 while in the downside scenario they reach $2.2 trillion (up from a projected 1.9 trillion at end-2012).”

A breakdown by the Washington-based IIF showed Saudi Arabia had the largest foreign assets in the GCC at the end of 2011, standing at around $614 billion. They are controlled by the Saudi Arabian Monetary Agency (SAMA), central bank.

The UAE had the second largest assets of $503 billion, most of which are controlled by the Abu Dhabi Investment Authority, one of the world’s largest sovereign wealth funds.

Kuwait’s foreign assets were estimated at around $306 billion while they stood at nearly $59 billion in Qatar, $18 billion in Bahrain and $16 billion in Oman.

The IIF expected the GCC’s combined assets to rise to $1.9 trillion at the end of 2012 and nearly $2.13 trillion at the end of 2012.

Its figures showed the six members basked in their highest current account surplus of around $327 billion in 2011 after oil prices soared to a record average of $107 a barrel. The IIF, which groups major Western banks, projected the surplus to break another record of $358 billion in 2012 before it receded to nearly $262 billion in 2013.

According to the IMF, in the downside scenario, four GCC countries are projected to experience current account deficits by 2017 (Bahrain, Oman Qatar, and Saudi Arabia) with Oman recording the largest projected deficit at over 17 percent of GDP.

Comparing the baseline projection for 2017 with the downside scenario for the same year, the UAE and Bahrain are the least affected, with declines of 8 and 7 percent of GDP, respectively, reflecting the more diversified nature of these economies, it said.

Turning to fiscal balances, it said the GCC states would under the downside scenario go into deficit by 2014, and all their economies would run fiscal deficits by 2017.

Bahrain and Oman stand out with deficits of 16 percent of GDP each, but Saudi Arabia is also projected to reach a double digit deficit, it added.

GCC countries, sitting atop 40 per cent of the world’s proven oil deposits, have enjoyed massive financial surpluses over the past few years because of a large increase in crude prices.

The recent period was in sharp contrast with that during 1990s, when they reeled under heavy deficits because of low oil prices and output.

During 2008-2012, Saudi Arabia alone is projected to earn a whopping $1.18 trillion from oil exports, more than double its total income in 10 years during the 1990s.

The UAE’s 2008-2012 revenues are expected to reach around $369 billion while those of Kuwait and Qatar could peak at $357 billion and $113 billion, according to the London-based Centre for Global Energy Studies, which is owned by former Saudi oil minister Ahmed Zaki Al Yamani

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