The GCC region is among the least economically vulnerable in the world, when ranked using risk analysis that focuses on basic economic fundamentals such as a country's total indebtedness and its exposure to the global financial system, according to a report by Merrill Lynch. The six GCC countries combined were among the least risky when ranked according to export to import ratios, and levels of foreign direct investment. The bloc also had the highest current account balance and fiscal balance, when compared with their GDP, the report released yesterday said.
That view is shared by UAE officials. According to Sultan bin Saeed al Mansouri, the Minister of Economy, the UAE's economy will not be affected by the economic crisis this year. "This year is not too much of a problem; it won't affect our growth. But 2009 will be a testing year for us and for the world economy," he said yesterday. "The UAE economy is strong, well-organised and a lot of steps have been taken by the government and financial institutions to address the impact of the credit crisis."
The results of the Merrill analysis turn conventional wisdom on its head by ranking countries such as Nigeria and Mexico as the least risky, and countries such as Australia and Switzerland as the most vulnerable. The more risky economies, although sometimes more developed, "exhibit worse balance-of-payments positions, stretched external debt service ratios and over-leveraged financial systems". Although it yielded some surprises, the report revealed many of the underlying problems that created this year's global financial chaos, according to Radoslaw Bodys, an economist at Merrill Lynch.
"It's the sort of analysis that you should always have at the top of your mind," he said. Had people been taking this kind of risk analysis more seriously during the past few years, the financial crisis might have come as less of a shock. "Over the past couple of years... people were not even thinking if a country has X, Y, or Z risk of paying back its debt." Many of the countries ranked most risky experienced "capital flow bonanzas" during the past five years, which made them more likely to suffer an economic crisis. Among those countries were Australia, France, the US, the UK, Spain, and South Africa. The UAE ranked 23rd out of the 44 countries ranked.
However, because much of the GCC is dependent on oil exports, it could suffer if an global economic downturn pushes oil prices lower, according to the Gulf Finance House (GFH). If oil falls below $60 a barrel for an extended period of time, the GCC growth could take a hit, according to Ala'a al Yousuf, chief economist at GFH. "The forecast fall in oil export revenues suggests that GCC economies will join the fourth and last group of countries [mainly commodity exporters] impacted by the global economic slowdown in 2009," he wrote. On Wednesday, the price of oil stood at $69 a barrel, up from a recent low of $62.73 on Oct 28.
However, if oil prices stay above $60, "the six GCC countries will not be exposed to systemic shocks due to solid macro and banking system fundamentals. However, the correction in real estate prices, particularly in the UAE, remains a concern", according to Mr Yousuf. During the past few months, many GCC governments have taken action to shield their economies from the fallout of the global financial crisis. Many have insured bank deposits, injected government funds into banks and stock markets and cut interest rates in an attempt to bring down the cost of borrowing. The UAE alone has offered as much as Dh120 billion (US$32.6bn) to local banks.
tpantin@thenational.ae
