UAE has third largest cash reserves in Arab states

Strong oil prices over the past three years have pushed the official financial reserves of the six-nation GCC to their highest level in nearly 20 years following years of a steep decline because of widening budget deficits, according to IMF figures.

At the end of last year, the GCC's combined cash reserves with the International Monetary Fund, excluding gold, stood at $46.16 billion compared with $45.3 billion in 2000, when crude prices surged to their highest level since the end of the oil boom in the early 1980s.

The report showed the UAE had the third biggest reserves in the Arab world, standing at $15.2 billion at the end of last year.

Algeria had the highest reserves of around $23.1 billion followed by Saudi Arabia, which controlled nearly $16.7 billion.

The combined GCC reserves are more than double their level 10 years ago, when they stood at $20.59 billion, one of their lowest levels ever.

"The GCC countries are trying to rebuild their reserves after they eroded in the past years due to volatile oil prices and persistent budget deficits," said Abdul Aziz A. Dakhil, chairman of the Riyadh-based Financial and Investment Consultancy Centre.

"The level of the reserves now is almost at its highest point in nearly 20 years...this is because oil prices have remained strong over the past three to four years."

The average crude prices have remained above $20 since 2000 and they are expected to stay at that level this year, enabling GCC members to consolidate their reserves.

The six countries which control nearly 45 per cent of the world's extractable oil resources, earned as much as $127 billion from crude sales in 2000 and their income in 2001 and 2002 was around $200 billion. It is projected to be slightly lower this year.

With estimated imports of around $6.7 billion a month last year, the GCC's reserves provided a coverage of 6.9 months, far higher than the five-month standard recommended by the Washington-based IMF.

The coverage period was around four months in 1993.

High oil prices have allowed the GCC countries to record strong growth rates, which exceeded five per cent in real terms and 15 per cent in nominal terms in 2000. They were also able to cut or eliminate budget deficits and record high current account surplus, which means most of them did not need to borrow.

According to estimates by Meed magazine, the UAE recorded a current account surplus of around $2 billion last year and the level is projected to remain unchanged this year.

Saudi Arabia's surplus was estimated at $1 billion last year and $5 billion this year while Kuwait's surplus was put at $9.5 billion and $9 billion respectively. Other members recorded surpluses last year and their current account will remain in surplus this year.