Gulf gross foreign assets to hit $1.7tn

A divergence of economic fortunes is emerging between the GCC and the rest of the Middle East, says the Institute of International Finance.

GCC gross foreign assets are expected to swell to US$1.7 trillion by the end of the year, providing funds that could go towards helping cash-strapped Middle East economies beset by troubles, a leading financial trade group says.

Higher oil production and public spending would translate into faster growth in the GCC, said the Institute of International Finance (IIF), which has members including commercial and investment banks and insurance companies.

In contrast, growth would collapse in oil-importing countries hit by turmoil this year, it said in a report released yesterday.

"Unprecedented divergence unfolds in 2011 in Arab economies, posing exceptional challenges but also opportunities," said Dr Garbis Iradian, the deputy director of the Middle East and North Africa department at IIF.

The differing fortunes provided an opportunity for oil-exporting countries to team up with international financial institutions to provide aid for poorer regional economies, Dr Iradian said.

They could also help oil importers to introduce a framework of reforms to help secure long-term growth and prosperity, he said.

Egypt's government has held talks with GCC states as it seeks help to fill a funding shortfall of between $10 billion (Dh36.73bn) and $12bn.

GCC states have already come to the rescue of Bahrain and Oman, providing $20bn to help them rebalance their economies after recent troubles.

The IIF said GDP for Egypt would decline by 2.5 per cent this year; Tunisia by 1.5 per cent; Syria by 3 per cent; and Yemen by 4 per cent.

Growth would also slow in Bahrain, Oman, Jordan, Lebanon, Morocco and Sudan. No forecast was provided for Libya as the country remains gripped by civil war.

The outlook for the rest of the GCC was much more upbeat, the IIF said. Overall GCC expansion this year would accelerate to 6.5 from 5.1 per cent last year, it said.

Higher oil prices meant the GCC's current account surplus would rise to $292bn from $129bn last year, the IIF forecast. As a result, gross foreign assets would rise to $1.7tn by the end of the year.

UAE growth would this year rise to 3.8 per cent from an estimated 2.7 per cent last year, it said, and Dubai's economy would recover dramatically, with growth of 3.5 from 1.7 per cent last year.

Turmoil in the Arab world would boost the UAE economy through higher production of oil in Abu Dhabi, larger revenues because of higher oil prices and a diversion to the UAE of some trade, transport, tourism and finance, it said.

The strongest regional performer this year would be Qatar, with growth of 18 per cent, followed by Saudi Arabia with 5.3 per cent.