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Cash Reserves in Arab World Increase $115 Billion With Robust Growth Expected for 2013 and Higher Wages in Saudi Arabia

Middle East : 16 November 2012

Arab World Foreign Assets Expected to Increase by $115 Billion This Year

International cash reserves for Arab nations are forecasted to report massive growth of $115 billion in 2012, mainly due to higher oil prices. In 2011, foreign assets rose by about $20bn.

The Arab League, consisting of 21 countries, controlled almost $1,018bn in cash reserves by the end of last year, up from $998bn at the close of 2010 and more than twice the amount reported in 2006, when the Arab League controlled around $469bn. Most of this surge occurred in Saudi Arabia. By the end of last year, the Kingdom controls more than half of total financial reserves in the Arab League, according to local data.

Higher oil prices drove reserves up last year and forecasts show a $115 billion gain, pushing the total to $1,133bn by the close of this year, supported by high price levels and increased production, according to the IAIGC of Kuwait.

Based on the report’s findings, 13 Arab nations recorded higher levels of assets, one member nation reported stable levels and four nations recorded a decline in assets, including Egypt, Jordan, Syria and Yemen.

Saudi Arabia’s foreign reserves came in at about $538 billion at the close of last year. Forecasts put that number at $608 billion by the end of this year.

Saudi’s reserves fall under the control of SAMA (or Saudi Arabian Monetary Agency), and much of those funds have increased in the last five years due to increased oil prices and higher output.

Algeria recorded the second highest reserves in the Arab world, coming in at $188.8bn at the close of last year based on IAIGC figures. That nation is expected to post reserves of $210.8bn by the end of this year. Iraq and the UAE came in at fourth and fifth.

Robust Growth Forecasted for Economies in the GCC

Oil exporting nations in the Middle East are expected to experience robust growth this year, especially those in the Gulf and according to the IMF’s recently released regional outlook.

IMF forecasts indicate high to moderate growth expectations for next year, mainly due to possible pullbacks from expansionary policies within the regional governments.

Growth remains healthy in Gulf nations, with accommodating monetary conditions and expansion playing a major role in fiscal policies, but Middle East and Central Asia IMF director Masood Ahmad noted that growth should decline from 2011 levels of 7.5 percent, dropping to 3.25 percent next year when oil production hits a plateau.

Oil prices are expected to stay above $100 a barrel for the next year, according to the IMF. This will result in a stable combined current account surplus for oil exporting nations, remaining close to the historic highs of around $400bn reached this year. The surplus helped GCC governments to act in response to social demands by hiking spending for salaries and wages.

Although expenditures have dramatically increased in several GCC nations, their budgets are set at dramatically higher oil price levels, meaning that imbalances will occur should oil prices drop from current levels. Many oil exporting nations have built in reserves to ride out short term price fluctuations, but a sustained decline as a result of economic shutdown worldwide remains a serious risk.

As an example, should oil prices decline by just 10 percent, the combined current surplus of oil exporters would shrink by $150 billion. Increased spending levels have heightened vulnerability, leaving the economy at risk should prices drop too low or remain low for too long.

The IMF states that resilience can be boosted with shifts in the fiscal policy that bolster national savings. Smaller oil exporting nations must deal with budget constraints and the need to implement challenging trade-offs immediately. In GCC nations that have implemented the appropriate expansionary policies, government spending can be tapered off. Those expenses that are difficult to reverse, such as hiring in the public sector, are generally the first to experience the tightening.

Other social reforms, such as easing international trade restrictions and increased measures to secure skilled staff, generate more jobs within the private sector and drive growth.

Saudi Arabia To See 5.8 Percent Higher Wages Next Year

Workers in Saudi Arabia will see an average salary increase of 5.8% next year, according to an Aon Hewitt report.

The report used information gathered from more than 500 companies spanning 26 sectors within the Middle East. Findings report a projected salary increase of 6.08 percent across the entire Middle East next year, with an average hike of 5.4% across the GCC. This figure is the same as projections made last year, covering 2012.
Aon Hewitt has conducted this annual survey for 36 years, spanning the globe and focusing on the Middle East back in 2009. Nine GCC nations have companies included in the survey, including the UAE, Saudi Arabia, Bahrain, Jordan, Lebanon, Qatar, Egypt, Kuwait, and Oman.

Similar projections were made last year, covering the Saudi salary increases for this year. This shows that organizations remain confident in the stability of the GCC and are optimistic about growth in the future. Salaries in the IT industry are expected to increase by 7.2% next year, compared to an increase of 4.4% in telecommunications.

Saudi companies owned by foreign entities forecasted an increase of 6.6%, while locally owned firms expect just 4.8% in salary increases. Most businesses are awarding increases based on staff performance in all levels of the company, although this trend is strongest in lower levels.

It was also reported that fewer Middle East companies are considering the implementation of salary freezes. About 6.3% of Saudi Arabian firms participating in the survey implemented salary freezes this year, although that number is expected to drop to 4.9% next year.

Head of Reward Consulting at Aon Hewitt’s Middle East division, Martin McGuigan noted that the report includes indications of a positive economic direction for 2013 and confident corporations.

Reductions to the salary increase forecasts have ceased and more companies are basing salary increases on performance, a healthy state that provides good news to employees in the region.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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