Dubai: The combined external current account surplus of the countries of the Gulf Cooperation Council (GCC) is set to more than double this year to about $292 billion (Dh1.07 trillion) from $123 billion, the Washington headquartered Institute of International Finance (IIF), a global association of financial services firms with more than 430 member institutions, said yesterday.
The IIF yesterday published its first Arab world report, The Arab World in Transition: Assessing the Economic Impact. The report estimated that the total foreign assets of the GCC countries are $1.7 trillion against foreign liabilities of $500 billion.
"About one-half of the GCC's gross assets are held by sovereign wealth funds. Despite the turmoil in the region, we do not expect to see significant shifts in funds managed by the sovereigns as a specific response to the crisis," said Dr. George T. Abed, IIF Senior Counsellor.
The International Monetary Fund has forecast the GCC's current account surplus will more than double from $136 billion in 2010 to $304 billion in 2011.
Significant real growth
Most of the oil-exporting countries are likely to see significant real growth this year, including Iraq, which grew by just 0.9 per cent in 2010 but which is now likely to grow by 11 per cent in 2011 and by 11.5 per cent next year. High global oil demand and high prices are key factors for the gross domestic product (GDP) growth of these countries.
The IIF said its projections are based on estimated average prices of $115 and $110 per barrel respectively for 2011 and 2012, up from $80 per barrel in 2010.
"Government spending in the GCC as a whole is projected to increase by 25 per cent this year. This would raise further the breakeven price of oil that balances their budgets," said Dr Garbis Iradian, IIF Deputy Director, Middle East and Africa Department. In Saudi Arabia, the breakeven price of oil that balances the budget is expected to jump from $68 per barrel in 2010 to $85 per barrel in 2011, and then continue rising, but at a slower pace, to $102 per barrel by 2015.
The IIF expects that over the medium term, most of the increase in the global production of crude oil is expected to come from the Arab region, mainly from Saudi Arabia and Iraq. With its current production of 8.9 million barrels a day and production capacity of 12.1 million bpd, Saudi Arabia accounts for more than half of the world's spare production capacity. Unconfirmed reports indicate that its production capacity will increase to around 15 million bpd by 2016.
According to the IIF, the one exception to the robust GCC growth picture is Bahrain. The IIF said Bahrain's economic recovery has been interrupted and growth could slow to about 3 per cent in 2011 from 4.5 per cent in 2010, with considerable downside risk if the political situation goes unresolved for an extended period.
Dubai restructuring
With regard to Dubai, the IIF said Dubai World has successfully restructured its debt, but worries persist about the country's debt overhang. Other government related entities are also undergoing debt restructuring, including Dubai Holding. Dubai has regained market access, but the cost of borrowing remains high, reflecting the rollover needs of the $31 billion falling due in 2011 and 2012, and the continuing challenges related to the property sector.
The IIF said further progress is needed in Dubai on structural reforms, especially the enhancement of transparency and governance in the corporate sector, which if implemented could accelerate the pace of economic growth going forward to over 4 per cent in the medium term.