Business | Opinion
Gulf nations should contribute to stabilising global financial crisis
Wealthy members of Gulf Co-operation Council (GCC) ought to contribute generously towards finding resolutions to the ongoing financial crisis engulfing the world.
- By Jasim Ali, Special to Gulf News
- Published: 22:50 November 8, 2008
Wealthy members of Gulf Co-operation Council (GCC) ought to contribute generously towards finding resolutions to the ongoing financial crisis engulfing the world.
More specifically, contribution should go towards strengthening the coffers of the International Monetary Fund (IMF) in arranging for $250 billion (Dh919.5 billion) designed to help countries badly affected by the credit crunch.
The global financial crisis has reached exceptionally dangerous levels. Recently, the IMF provided rescue packages to Iceland, Hungary and Ukraine to help them overcoming the adverse effects of the crisis.
Undoubtedly, GCC countries have the financial capability to make a difference.
Latest available statistics suggest that together, sovereign wealth funds (SWFs) in Gulf states have amassed some $1.5 trillion.
The UAE stands out by virtue of accumulating an extraordinary $875 billion. Saudi Arabia, Kuwait and Qatar follow suit with $300 billion, $250 billion and $40 billion, respectively.
Oman and Bahrain remain the exceptions within the GCC by not accumulating substantial SWFs.
Earlier in the year, Bahrain's Mumtalakat, which serves as the official investment firm, succeeded in raising $500 million for investing abroad.
Now, some 97 per cent of Mumtalakat investments take place inside the country, hence the need for diversifying the investment portfolio.
More importantly, the IMF projects the doubling of SWFs belonging to the six-nation grouping by 2010. Ostensibly, the projections assumed oil prices remaining at high levels of 2007 and the first half of 2008.
However, oil prices have plummeted over the last few months on the back of fears that the financial crisis would cause a dramatic drop in economic growth rates worldwide. Oil prices have been hovering around $60 per barrel last week.
The argument goes that GCC states stand to gain when the world weathers the credit crunch. Return of confidence should serve as stimulus for pushing oil prices higher.
The petroleum sector plays a dominant role in regional economies by virtue of contributing about three-quarters of treasury income in all GCC countries.
Still, governmental spending contributes about 40 per cent of gross domestic product (GDP) in most GCC countries.
Numerous studies point out to lower than originally projected GDP growth rates in regional economies in the aftermath of subprime market debacle. Still, petroleum exports account for about 80 per cent of total exports of GCC states.
Other areas of GCC economies, notably the stock markets, should gain from return of confidence in the global economy. GCC bourses have reportedly lost $250 billion of their values in October alone.
Property markets
In addition, the crisis continues to undermine the property markets throughout the GCC. Trading has all but stopped over the few weeks, as owners refrain from selling to avoid causing a further drop in prices. Yet, would-be buyers prefer preserving liquidity to purchasing properties.
At the same time, GCC states need to enhance their outward foreign direct investments (FDI).
According to the World Investment Report 2008, issued by the World Conference on Trade and Development (UNCTAD), outward FDI amounted to $41 billion in 2007 up by nearly 50 per cent from the earlier year.
In fact, there is growing appreciation for GCC investments worldwide. Lately, Barclays Bank of the UK sought some $12 billion worth of investments from the UAE and Qatar in order to avoid government rescue package.
GCC states would be assisting their own econ-omies by helping international agencies address the financial crisis.
The writer is a Member of Parliament in Bahrain.
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