The combined total of the current account surpluses for members of the GCC (or Gulf Cooperation Council) is expected to be more than double in 2011, climbing from $123 billion to hit around $292 billion (or Dh 1.07 trillion) according to the IIF (or Institute of International Finance) out of Washington. The IIF is a financial services association covering the globe with 430 members.
The association’s first report covering the Arab World was released this week, entitled “The Arab World in Transition – Assessing the Economic Impact.” Estimates in the report state that the GCC nations hold $1.7 trillion in overall foreign assets and $500 billion in foreign liabilities.
Around 50 percent of the gross assets for the GCC are within sovereign wealth funds. The association does not expect the management of these sovereign funds to be altered in response to the recent turmoil and unrest in the region, according to Senior Counsellor for the IIF, Dr George T. Abed.
The IMF forecasted that the current account surplus in the GCC nations will go from the 2010 figure of $136 billion to $304 billion this year.
Many of the nations that export oil will experience significant real growth in 2011. This includes Iraq, although that nation saw only 0.9 percent growth in 2010. Growth in Iraq is expected to be 11 percent for 2011 and 11.5 percent for 2012. Rising global demands for oil and increasing prices are key factors in the GDP growth of these Arab nations.
The IIF forecasts are based upon average oil prices of $115/barrel for 2011 and $110/barrel for 2012, a significant increase from the 2010 figure of $80/barrel.
Expectations are that government spending will jump by around 25 percent in 2011. This increase also pushes the breakeven price for oil up in order for governments to balance the budget, stated the Deputy Director for IIF’s Middle East and Africa Department, Dr Garbis Iradian. The breakeven oil price in Saudi Arabia went from $68/barrel last year to $85/barrel this year and will continue to increase slowly reaching $102/barrel in 2015.
Over the midterm the IIF predicts that the majority of the increasing global crude oil production will originate in the Arab world, mostly Iraq and Saudi Arabia. Saudi’s current production level of 8.9 million bpd (or barrels per day) and current production capacity of 12.1 million bpd means that the Kingdom controls over half of the global spare oil production capacity. There have been reports (unconfirmed) that state the Kingdom’s capacity will hit 15 million bpd by the year 2016.
Based on the IIF’s findings, the only nation in the GCC not set up for healthy growth is Bahrain. The association stated that the interruptions in economic recovery in the nation will cause growth to slow down from 4.5 percent last year to only 3 percent this year. The IIF also states that the longer the political unrest continues to be unresolved, the higher the downside risk is.
The IIF stated that the successful restructuring of debt in Dubai World has not completely eliminated persistent worry over the nation’s overhanging debt. There is debt restructuring occurring in other government controlled organizations, such as Dubai Holding. Although the cost of borrowing continues to be high, Dubai is recovering market access. The higher borrowing costs reflect the rollover needs of $31bn in debt that will be due this year and next, as well as a reflection of the challenges still being faced by the property sector.
The IIF stated that Dubai needs to experience more progression in terms of structural reform, particularly enhancing the transparency and management of the corporate sector. The implementation of these reforms could drive economic growth, allowing it to surpass 4 percent over the midterm.Paul Holdsworth, Staff Writer, Gulf Jobs Market News