The current economic performance of the Middle East region continues to be exceptional. And this trend is expected to continue. According to IMF data, nominal growth in the region is expected to average a robust 17.6 per cent in the four years through 2006, outperforming China’s much-lauded economy which reached 15.1 per cent over the same period.
Fiscal accounts are expected to remain positive for the oil producing nations, allowing investment to become an increasingly important driver of growth going forward. Inflation rates are likely to ease somewhat in most countries, with the exception of Qatar and the UAE.
As far as external balances are concerned, the region is expected to remain a strong source of liquidity on the global stage. Current account surpluses are expected to hit an extremely healthy level of US$ 260 bn - down from US$ 290bn in 2006. GCC countries are expected to account for over 80 per cent of this surplus.
These huge current account surpluses will ensure a continued build-up of foreign assets. This trend is likely to help protect the outlook for long-term government revenues and thus boost even further the ability to invest in times of economic sluggishness. With oil prices and liquidity stable, budget surpluses of Gulf Cooperation Council countries will continue to be high.
Project Finance in the Gulf has never offered more opportunities. Numerous multi-billion dollar deals have come to market in 2006 and this is likely to continue at the same pace over the next decade. Similarly, the next phase of industrialization, even in the GCC, cannot be financed solely out of equity or government budgets.
An increasing reliance will be found in sourcing funds through debt markets for Sukuk and other capital market instruments and financial markets for syndications. New financial centers – Qatar Financial Center, Dubai International Financial Center and Bahrain Financial Harbor – Bank assurance, Cross Border expansion and increased Islamic banking activities will produce dramatic change in the banking and financial landscape of the GCC.
In short, banking reforms in the Arab region are catching-up with global demands. The creation of a new generation of financial offerings including banking, trade, insurance, Electronic Bill Presentment and Payment (EBPP), Islamic and exchange through electronic channels is vital to the financial sector’s future success.
Relatively small-sized local banks are under increased pressure in competing with multinational banks and financial institutions. Acquiring global best practices, efficient risk management, reporting and regulatory control and transparency are going to be key drivers for banks and financial institutions to reap benefits for many years to come.
