The Institute of International Finance (IIF) has issued a credible report detailing predictions of economic growth rates for Gulf Cooperation Council (GCC) countries of Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain. The IIF attributes this return of growth to higher oil prices, steady government spending, the normalisation of global trade and capital inflows.

Set up in 1983, the IIF's membership boasts of financial institutions or establishments with access to data and interest in releasing reliable reports.

The recently released report predicts real, adjusted for inflation, gross domestic product (GDP) a growth of 4.4 per cent in 2010, and increasing higher to 4.7 per cent in 2011.

According to the same report, GCC economies grew by a negligible 0.3 per cent in 2009.

To be sure, 2009 was projected to be a difficult one reflecting consequences related to the global financial crisis, which erupted in the summer of 2008. Amongst others, oil prices dropped from a record $147 (Dh540) per barrel in July 2008 to around $35 per barrel at the start of 2009.

Needless to say, the oil sector is uniquely significant by virtue of accounting for 75 per cent of treasury income and 80 per cent of exports of GCC economies. Slight, let alone major, changes of oil prices leave their imprints on GCC economies.

The same IIF report projects a notable rise in revenues generated from the petroleum sector on the back of firm or firmer oil prices, which hover below $70 per barrel at the moment. The combined petroleum revenues of GCC countries were put at $323 billion in 2009, increasing to $419 billion in 2010 and still higher to $457 billion in 2011.

However, the IIF's report has not provided more details on petroleum revenues, thus denying us the opportunity to ascertain the figures.

Nevertheless, there is plenty of support for the IIF's predictions, including a strengthening of budgetary spending.

A report by Emirates Industrial Bank puts GCC's combined budgetary expenditures at about $270 billion in fiscal year 2010, up from $236 billion in 2009, showing a welcoming growth of 14.4 per cent.

In fact, Saudi Arabia's budget amounts to $144 billion in 2010, up 14 per cent from original figures for 2009. Also, Qatar's 2010-11 budget, which starts in April, is up by 25 per cent to $32.4 billion.

In fact, the report by Emirates Industrial Bank predicts a considerable budgetary surplus of $50 billion in 2010. This is a sizable amount by virtue of it accounting nearly 19 per cent of total projected spending for the same year.

Yet, what matters most nowadays is sustaining spending in order to register the highest possible growth rates in local economies.

In essence, except possibly for Qatar, GCC economies recorded virtually no real GDP growth in 2009. Thus, the regional economies need to make up for last year's lost opportunities through firm and sustained spending.

The opportunities are in place thanks to firm oil prices. Also, there is hardly any talk of real inflationary pressures at the moment.

Diversification

Still, stronger governmental spending should facilitate achieving another goal — diversifying the economies away from the petroleum sector.

Unfortunately, regional economies remain at the mercy of developments in oil markets. Yet, stronger public spending serves to encourage private sector investors to follow suit, thus ensuing better economic results.

An added advantage of stronger spending by both public and private sector stakeholders relates to the addressing of the challenge of employment opportunities for new entrants in the job market thanks to firm population growth. The GCC population is growing by at least 2.6 per cent annually.

The writer is a Member of Parliament in Bahrain.