UAE, Kuwait lead GCC anti-crisis measures

The UAE and Kuwait enforced the most extensive fiscal measures to counter the repercussions of the 2008 global financial turbulence and prevent a slide in their economies, according to a key Western financial establishment.

Measures taken by the UAE involved a law to guarantee bank deposits, a Dh50 billion liquidity support facility by the Central Bank, capital injections by the government into five Abu Dhabi banks, monetary easing measures and higher public spending as part of fiscal stimulus plans, the Washington-based Institute of International Finance (IIF) said in a study.

Kuwait was also involved in five key counter-crisis measures but did not enforce a clear fiscal stimulus, as public spending remained relatively low. But unlike the UAE, Kuwait resorted to equity purchases to rescue some ailing firms.

The IIF listed six main steps taken by the governments of the six-nation Gulf Co-operation Council (GCC) following the eruption of the crisis in September 2008. They included deposit guarantee, liquidity support, capital injection, equity purchases, monetary easing and fiscal stimulus.

The report showed the UAE and Kuwait implemented five of those measures while Saudi Arabia, the world's top oil exporter, enforced four steps, including deposit guarantee, liquidity support, monetary easing and fiscal stimulus.

Qatar, the only Arab nation to record high growth after the crisis given its soaring gas exports, implemented four measures except deposit guarantee and monetary easing, according to IIF, which groups many key Western banks.

Oman resorted only to liquidity support, equity purchase and monetary easing while Bahrain enforced liquidity support, monetary easing and fiscal stimulus.

Monetary measures in the UAE involved lower interest rates and easing the minimum reserve requirements to give banks cheaper and more access to funds.

The UAE is also believed to have sharply boosted public spending in its consolidated financial account (CFA), which covers the federal budget and expenditure by each of the seven emirates.

The UAE has not published CFA data for 2008 and 2009 but estimates by the IIF showed expenditure leaped by nearly 52 per cent to Dh253bn in 2008 from around Dh167bn in 2007. It further swelled to nearly Dh289bn in 2009.

"Strong external and fiscal positions prior to the global recession made it possible for the GCC countries to implement countercyclical policies and financial sector support measures in response to the global downturn," the IIF said.

"The six countries' authorities undertook extraordinary measures to ensure the normal functioning of financial markets. These actions helped restore confidence, stabilise the banking system, and support domestic demand, thus paving the way for a timely recovery."

Strong oil prices during the latest oil boom pushed the GCC's combined foreign assets above $1 trillion (Dh3.67trn) at the end of 2009. Their cumulative crude export earnings totalled nearly $1.84trn during 2004-2009, according to the Organisation of Arab Petroleum Exporting Countries.

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