GCC economic recovery to be boosted by oil and private sector growth; IIF

By Anju T K, Intern Reporter
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As the third wave of the pandemic recedes, the economic recovery in the GCC states will quicken in 2022, the Institute of International Finance (IIF) stated in a research paper. The organization further added that a sustained recovery is unlikely if the GCC population continues to be susceptible to the virus and its mutations.

According to Chief MENA economist Mr. Garbis Iradian, and Mr. Samuel LaRussa, IIF’s senior research analyst, the region’s hydrocarbon real gross domestic product, which accounts for about a third of the world’s proven oil reserves, is expected to grow by 5 percent in 2022 “on the assumption that the Opec+ production cuts end by mid-2022.”

The GCC economies are recovering from the effects of COVID-induced challenges on the back of monetary and fiscal help provided to mitigate the pandemic’s impact. Last year, the global economy was badly rocked by the health crisis, which sent the world economy into its worst recession since the 1930s.

The IIF predicts that Gulf central banks would keep their policy rates steady until the end of 2022, as they track US rates as part of the dollar peg. Non-resident capital inflows are expected to increase from $123 billion in 2020 to $148 billion in 2021, according to IIF data.

The GCC governments have raised $95 billion in the international market. The region’s Eurobond issuance peaked at $111 billion in 2020, with sovereign and quasi-sovereign issuances dominating, as per the IIF.

The worldwide financial industry group predicts that average CPI inflation will rise from roughly 1 percent in 2020 to 2.3 percent in 2021, owing to increasing food and gasoline prices.

Saudi Arabia, UAE, Oman, and Qatar have all declared plans for budgetary adjustment in the following years, which will place their fiscal positions on a sound foundation in the medium term, even if oil prices continue to fall after 2021. However, stronger adjustment is needed in Bahrain to achieve fiscal sustainability, IIF noted.

Furthermore, the IIF economists added that “Central banks in the region extended the deferred payment program until the end of June to support private sector financing. Once the forbearance is lifted, we could see a modest deterioration in asset quality.”

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