GCC foreign assets to gain $195bn

Strong oil prices will sharply widen the external fiscal balance of Gulf hydrocarbon exporters in 2011 and this will boost their foreign assets by a staggering $195 billion at the end of the year.

The surplus in the combined current account of the six-nation Gulf Cooperation Council (GCC) already swelled by nearly $161 billion in 2010 after crude prices surged by at nearly $15 above their 2009 level, the Washington-based Institute for International Finance (IIF) said in a report on the Arab region.

With oil prices now hovering at above $100 and most GCC members are pumping crude at higher levels to offset disrupted Libyan oil supplies, their current account surplus is expected to rise to one of its highest levels in 2011.

The UAE’s surplus is projected to nearly double this year while there will be sharp rises in Saudi Arabia and other GCC members, IIF said.

“The GCC’s overall current account balance is expected to widen from an estimate of $129 billion in 2010 to $292 billion (equivalent to 22 per cent of GDP) in 2011. Hydrocarbon exports will rise from around $448 billion in 2010 to $681 billion in 2011,” IIF said in the report, obtained by Emirates 24/7.

Non-hydrocarbon exports will also increase significantly to $214 billion (mainly petrochemicals from Saudi Arabia and re-exports from the UAE), it said.

Imports of goods are projected to increase by 18 per cent to $414 billion, well above the previous peak of $368 billion reached in 2008.

“Consequently, gross foreign assets of the GCC are projected to rise from $1.5 trillion to $1.7 trillion in 2011, against foreign liabilities of $0.5 trillion.”

The report said at least 75 per cent of the region’s financial assets are held by countries that are not subject to unrest, including Saudi Arabia, the UAE, Qatar, and Kuwait. More than one-third of these assets are held by sovereign wealth funds (SWFs), including the Abu Dhabi Investment Authority (ADIA).

IIF said that while most of these assets are currently invested in the international financial system, there had also been a rising interest in the domestic and regional markets until recent events.

“With relatively low external debt, the large net foreign assets ($1.2 trillion) of the GCC will continue to provide governments with the flexibility to support growth through robust government spending levels in the next few years.”

In the oil importers, the external current account deficit is projected to widen from 4.3 per cent of GDP in 2010 to 5.7 per cent in 2011, the report showed.

It said the deterioration is due to a sharp drop in earnings from tourism, particularly in Egypt, Lebanon, Syria, and Tunisia, and a substantial increase in the import bill as a result of high oil prices.

“In Egypt, the disruption to exports and drop in tourist arrivals will widen the current account deficit. This, together with portfolio outflows and a reduction in FDI, has put increased pressure on the balance of payments.”

The report said both Egypt and Tunisia (and soon perhaps other countries in the region) are in discussions with potential multilateral and bilateral donors, including countries of the GCC, on possible aid programmes.

“Undoubtedly, financial resources are important at this pivotal moment in these countries’ transitions. However, it is equally important that these countries also commit to a medium term framework of reforms that would help secure their long-term growth and prosperity.”
A breakdown for the GCC nations showed their combined current account surplus would swell from around $128.5 billion in 2010 to $292.3 billion in 2011.

The surplus is projected to surge from about $21.6 billion to $43.6 billion in the UAE, from $38.8 billion to $113.9 billion in Saudi Arabia, from $39.1 billion to $67.9 billion in Kuwait, from $21.6 billion to $48.9 billion in Qatar, from $0.8 billion to $2.9 billion in Bahrain, and from $6.6 billion to $16.4 billion in Oman.

Their gross foreign assets is expected to soar from around $1,511 billion in 2010 to a record high of nearly $1,706 billion in 2011, the report showed.

It gave no breakdown for each member but showed the GCC’s foreign assets accounted for around 73.5 per cent of the total Arab foreign assets of $2,053 billion at the end of 2010. At the end of 2011, the GCC’s assets are expected to rise to nearly 76.5 per cent of the total Arab assets of $2,228 billion.

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