GCC SWF assets put at $1.7trn

Moody’s says funds are cushion to offset sudden oil price fall

Strong oil prices have sharply widen the fiscal surpluses in Gulf hydrocarbon producers and this boosted the assets of their government funds to an all time high of around $1.7 trillion at the end of 2012, according to Moody’s investor service.

The assets controlled by sovereign wealth funds (SWFs) in the six-nation Gulf Cooperation Council (GCC) were nearly $700 billion higher than their level of around $one trillion at the end of 2007, the rating agency said.

In a report issued on Monday, the London-based agency noted that the GCC economies have benefited from large foreign-exchange inflows driven by oil revenues, adding that some of the windfall has been spent through the governments’ fiscal accounts while the rest was placed in SWFs, reinforcing their financial strength.

All GCC countries are likely to have a positive net international investment position (IIP), although only Bahrain and Kuwait report an IIP to the IMF, it said. 

Since 2005, Saudi Arabia has publicly disclosed on a timely basis the size of international reserves and SWF assets held by the Saudi Arabia Monetary Agency (SAMA), which is also the country’s central bank, but not a complete external asset and liability balance sheet, Moody’s said. 

Unlike Norway’s Government Pension Fund and Singapore’s Temasek, none of the largest GCC SWFs publishes periodical financial statements, it added. 

“For all GCC countries, we estimate that the countries’ SWF assets now exceed central government liabilities. GCC SWFs reached an aggregate $1.7 trillion in assets at the end of 2012 (equivalent to 110 per cent of the aggregate GDP), up from around $1.0 trillion in 2007 (nearly 116 per cent of GDP).”

It said the funds compare to an aggregate central government debt level of $2363 billion at the end of 2012. But it added that the debt levels vary greatly across countries, with Bahrain, the UAE and Qatar having government debt in excess of 20 per cent of their GDP, most of which is domestically funded.

“The vulnerability of GCC government finances to a sudden fall in oil prices is mitigated by their massive SWF assets,” Moody’s said.

At six times the amount of annual government expenditures in 2012, Kuwait has the largest cushion followed by the UAE and Saudi Arabia, the report showed.

Qatar has a “more modest cushion” given the late monetisation of its hydrocarbon wealth, but this is partially offset by a rapid growth in assets and a low fiscal breakeven oil price. Oman and Bahrain remain in a more fragile fiscal position.

Moody’s forecasts showed that the GCC’s 2013 current account surpluses will range from a high of 38.6 per cent of GDP for Kuwait, to a low of 9.8 per cent of GDP for Oman. “These are exceptionally high levels – the median for all investment-grade emerging market economies, excluding the GCC, is a negative 0.6 per cent of GDP.”

The report projected oil prices at an aver age $112 per barrel in 2013, in line with levels recorded over the past two years (Brent crude).

It said these are historically high levels, twice the average price between 2001 and 2010 ($54.8).  More importantly, prices have displayed a “remarkable stability”, with buoyant demand from emerging markets offsetting uncertainty in Europe and the US.

Turning to economy, the report said increased crude oil output and high prices since 2011 have boosted real GDP growth in the GCC to an average of 6.6 per cent in the past two years. With oil output and prices stabilizing, “we expect that growth in the GCC will decelerate to an average of around 3.5 per cent in 2013, with Qatar likely to post the highest growth rate (5.1%) and Kuwait the lowest (2.1%).”


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