May 05 2012
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Gulf economies pull ahead amid rising oil prices
JEDDAH - High hydrocarbon prices are continuing to underpin the economies of oil exporters Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Oman, and Bahrain, said Standard & Poor's Ratings Services in its report card on its rating universe in Gulf Cooperation Council (GCC) countries published Thursday.
The report titled "High Oil Prices Are Widening The Gap Between Gulf Oil Exporters And The Region's Other Economies" said "oil-rich economies in the Gulf are increasingly pulling ahead... on the back of continuously high oil prices," said Standard & Poor's credit analyst Tommy Trask, "and the high prices support ratings across a range of corporate and infrastructure sectors, including oil & gas up- and downstream as well as sectors relying indirectly on commodity led growth such as trade."
Outside the oil sector, tourism and trade volumes have risen in the UAE, according to government data.
The region continues to progress in the restructuring of companies, predominantly government-related entities (GREs), that piled up hefty debt in order to make foreign investments during the boom years.
GCC region is still likely to see solid growth in 2012, Emirated NBD said in its GCC Outlook 2012.
However, the report forecast real GDP growth slow across five of the six GCC states, the exception being Bahrain. It expects average growth for the region at 3.9 percent in 2012, down from an estimated 7.3 percent in 2011.
Inflation will rise only slightly to an average 3.5 percent in 2012, partly due to a low base but also due to higher services prices as wage increases and other transfers boost household incomes. The report further expects Saudi Arabia's real GDP growth to slow to 3.8 percent in 2012, with budget surplus.
The official budget for 2012 is typically conservative, projecting a 37 percent decline in revenue and a 14 percent decline in expenditure from 2011 levels. However, Emirates NBD report believed "the budget was based on an average oil price assumption of around $70 per barrel, while consensus forecasts for oil prices in 2012 are closer to $105 per barrel.
Based on the consensus oil price forecast, the study still expects revenue to top SR1 trillion this year.
Regional bond prices have remained highly volatile over the past six months, but bonds have been trading tighter in the past three months on general optimism in global financial markets. Consequently, more Gulf issuers are tapping the international capital markets to raise funds.
"We see the trend in rising capital market issuance as generally positive for credit quality since it has the potential to derisk balance sheets of issuers that have tended to rely heavily on short-term financing from local banks," Trask added.
"Although the region's banks may be less inclined to grow their balance sheets, we think government-related entities continue to have good access to bank funding," said Standard & Poor's credit analyst Karim Nassif, "and infrastructure entities such as TAQA and Saudi Electric Co. have successfully raised Islamic financing internationally."
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