Gulf states’ GDP set to cross $600bn
The economic boom in the GCC is set to enter its fourth year thanks to high oil prices and the group’s GDP is expected to double to $600 billion in 2006, says a report.

The GCC economies are being compared to China in terms of the surge in export receipts, the substantial current account surpluses, the large accumulation of foreign assets by the central banks and the rest of the banking systems, and the investment boom, said a Gulf Finance House economic report. New studies by the Washington-based Institute for International Finance (IIF) and the International Monetary Fund (IMF) provide highly positive assessments of recent developments and paint a very encouraging picture for the period ahead, it said.
Oil and gas export receipts for the GCC are expected to reach a record level in 2006 reflecting conservative projections of both higher export volumes and oil prices. These receipts are expected to reach $330 billion, which is more than double the average for 2000-02. In real dollar terms, GCC oil and gas export receipts in 2005 are estimated to be nearly twice as high as during the 1979-81 oil price shock that was caused by the disruption to Iranian oil exports following the revolution.
In a recent study, the IIF noted that in 2005 the GCC’s total export earnings exceeded those of Russia, India and Brazil combined. Despite projected significant increases in imports of consumer and capital goods, as well as increased outflows of workers remittances, the current account balance for the GCC in 2006 is expected to show another record surplus of about $180 billion (equivalent to about 30 per cent of GDP) in line with the expected outcome for 2005, it said.
According to the IIF, much of the current account surplus will be reflected in an increase in foreign assets of the banking systems (including official central bank reserves) which will make the GCC second only to China in this regard.
The record high oil export receipts are expected to be reflected in record government revenues. Although all countries in the GCC have increased their spending in recent years and are expected to maintain an expansionary fiscal stance in 2006, fiscal accounts are still likely to show substantial surpluses. The GCC’s fiscal surplus is expected to decline slightly in 2006 to $110 billion (about 18 per cent of GDP) from $123 billion (about 21 per cent of GDP) in 2005.
By the end of 2006, the economy of the GCC will have almost doubled to $600 billion compared to the average of about $300 billion for 2000-02, the report said.
According to the IIF, the block’s GDP surpassed that of Switzerland in 2005. A combination of higher government spending and abundant liquidity in the financial system has generated an investment and consumption boom that is stimulating growth in the non-hydrocarbon sector. Rapid economic growth has lifted GDP per capita throughout the region. Despite robust domestic demand, inflation has remained subdued reflecting considerable flexibility and openness in product markets and, in the context of pegged exchange rates, to low global inflation.
According to the IMF’s latest World Economic Outlook, managing the oil revenue boom will be a challenge especially with a significant proportion of the boom expected to be permanent. The boom provides the governments in the region with the opportunity to address some of the long-standing structural reforms such as generating employment opportunities for a rapidly growing indigenous labour force. However, the boom is too large compared to the size of the regional economy to be absorbed quickly. Government spending can be increased only gradually if it were to be effective.
The IMF stresses the importance of avoiding two policy mistakes of earlier booms. First, priority should be given to government expenditure that will have a lasting impact on growth, productivity and standards of living. Second, expenditure should be increased by amounts that can be sustained. While this will help avoid a sudden appreciation of the real exchange rate, this needs to happen in the long term and it is essential that the process is managed well.

Saudi surplus doubles
Saudi Arabia said its 2005 budget surplus is projected to more than double to SR214 billion ($57.1 billion) but a smaller surplus is expected next year. 
The Finance Ministry said the surplus would be used to repay public debt, invest in infrastructure projects and pump money into development.
The 2004 surplus was recently revised upwards by the central bank to SR107 billion from SR98 billion previously. The ministry statement said it would shrink next year to SR55 billion.
With oil prices hitting record highs this year, the ministry said 2005 gross domestic product growth would reach 6.54 per cent in constant prices and 22.7 per cent at current prices.
It also said public debt is expected to fall by the end of this year to SR475 billion, or 41 per cent of GDP in current prices. At the end of 2004 Saudi Arabia estimated public debt at SR614 billion.
Inflation, measured by the government’s cost of living index, is estimated at 0.4 per cent this year. The non-oil GDP deflator, seen by economists as a more accurate reflection of inflation, grew 1.14 per cent. It said the government would allocate SR87.3 billion for education and manpower development in 2006, SR31 billion for health and social affairs and SR22.5 billion for water, agriculture and infrastructure.

Dubai exports up 27pc
The value of exports and re-exports by Dubai traders covered by Certificates of Origin (COs) for the nine months of 2005 reached Dh71.3 billion ($19.42 billion), a 27.2 per cent increase over the Dh56 billion registered during the same period in 2004, according to Dubai Chamber of Commerce and Industry statistics.
Gold and diamonds contributed 22 per cent of the trade in 2004 and it is expected to continue its growth this year.
Iran remained Dubai’s largest export and re-export market. During the nine months, the value of exports and re-exports to that country reached Dh21.9 billion, or 31 per cent of the total value.
The second largest market, Saudi Arabia, grew by 30 per cent to reach a value of Dh13.6 billion, retaining a share of 19 per cent of the total, the Dubair Chamber Statistics revealed.