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GCC Countries Have Strong Asset 
Base to Weather Crisis, S&P Says

DUBAI — The governments of the Gulf Co-operation Council, or GCC, have enough assets to give them elbow room to absorb the impact of the global downturn, and still pursue their growth goals, said Standard & Poor’s.

S&P said that while the worldwide credit crunch had raised their contingent liabilities, and had adversely affected the value of their assets, including sovereign wealth, “GCC countries are well placed to shield their economies from the turbulence.”

It said that GCC governments which have acquired significant wealth during the steady increases in oil prices, have the exceptional capacity to keep their economies moving through “counter-cyclical expansionary fiscal policy.”

“We believe that GCC governments have the fiscal space to implement their counter-cyclical expansionary policies, despite experiencing significant losses on their foreign asset holdings over the past 18 months,” Standard & Poor’s credit analyst Farouk Soussa said.

Soussa said that Saudi Arabia, Abu Dhabi, and Kuwait are in the best position to pursue such policies and they could sustain a 10 per cent deficit without resorting to debt finance for 
at least 25 years.

On the other hand, Bahrain and Oman are in the least comfortable positions, as their oil resources are limited compared to other GCC states and thus, have benefited less from the windfall in high oil prices that allowed its neighbours to accumulate assets.

S&P said that unlike in previous oil prices cycles in the 1970s and 1980s, where a sharp decline in oil prices was met with a sharp decline in 
government expenditure.

“GCC policy makers have today by and large chosen to smooth government expenditure, which is a critical driver of the non-oil economy.”

Saudi Arabia, for example, has opted to increase government expenditure by 16 per cent, focusing on infrastructure spending, which will rise in 2009 by some 36 per cent — the largest ever increase in infrastructure spending in that country. The same responses were seen in Abu Dhabi, Qatar, and Oman.

· rocel@khaleejtimes.com