Happily, and certainly not surprisingly, three GCC states were quick to demonstrate notable generosity in dealing with Egypt’s current crisis. Undoubtedly, the move implies political implications and indicates an acceptance of the change of power in a major Arab country.
Egypt’s 85 million population is more than double the that of the next most populous Arab country, Algeria. In fact, Egypt accounts for 23 per cent of the total population of Arab countries, estimated at 371 million.
Thus far, Saudi Arabia, Kuwait and the UAE have collectively promised some $12 billion worth of financial assistance during a critical transitional phase, which is characterised by a drop in the number of visitors and undermining a key sector of Egypt’s economy.
The Saudi assistance compromises of a $1 billion grant, $2 billion in deposit with the Central Bank of Egypt (CBE) and $2 billion worth of petroleum products.
The Kuwaiti package is split up into a $1 billion grant, a $2 billion deposit with the CBE and $1 billion worth of diverse oil products. The UAE’s pledge takes the form of a $1 billion grant and $2 billion interest-free deposit with the CBE.
Hence, of the $12 billion aid, a substantial $3 billion is through grants. A similar amount in the form of petroleum products also translates into monetary value, as Egypt would not be required to pay up to a certain amount. Indeed, authorities generate money from selling such strategic goods to local beneficiaries.
As such, half of the financial support compromises of deposits with the central bank. Clearly, the deposits are designed to bolster the country’s financial position and be a positive spillover for its currency and credit ratings, to name but a few such benefits.
Needless to say, the rapid response, emerging within 24 hours of the change of power in Egypt, tells something about the financial strengths of the GCC countries. Hard data point to a significant financial position for the economic bloc at large.
For instance, Saudi Arabia enjoyed surplus of $103 billion in fiscal year 2012, extraordinary by all means. The credit largely goes to a steady oil output and prices.
The budgetary surplus in Kuwait for 2012-13 hovered around $60 billion. The UAE led by Abu Dhabi has substantial sovereign wealth funds (SWFs), more so than any other Arab state. The figure stands at around $815 billion, according to the Sovereign Wealth Institute.
This accounts for 15 per cent of the world’s total as of June. What’s more, the GCC as an entity enjoys an exceptional position on the external accounts.
According to the Institute of International Finance (IIF), the six-member bloc is projected to have net foreign assets (NFA) exceeding $2.5 trillion by end-2013. The NFA advises of value of assets owned abroad minus domestic assets owned by foreigners.
Certainly, this comes as no surprise to GCC watchers. In reality, the region’s institutional investors are known for their global outlook.
Concurrently, the IIF puts the external current account surplus for the GCC at $334 billion in 2013, a staggering total. Notably, Saudi Arabia competes with China and Germany for supremacy of countries having the largest current account surpluses.
In other words, some GCC countries have financial resources readily available to extend support to other nations if and when deemed necessary. Clearly, it pays for countries to be friendly to GCC nations.