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Gulf economies to stay oil-reliant: Merrill Lynch.

Byline: Debojyoti Ghosh

MUSCAT Eoe1/4" Despite the diversification agenda, the GCC is likely to remain leveraged to oil. GCCEoe1/4aos macro story is likely to remain highly leveraged to the global business cycle since oil still accounts for 32 per cent of GDP, 74 per cent of total exports and 84 per cent of budget revenues finds a recent research report by Banc of America Securities-Merrill Lynch.

In Mena region, the GCC countries are likely to see average ten-year growth of about four per cent, with Saudi Arabia taking the lead over Qatar and UAE. Egypt is likely to remain among the top performers, with 4.5 per cent, said the report.

It is unlikely that GCC will fulfil its potential growth of 6 per cent over the medium term since in the short term the non-oil sectors will need to recuperate from the regionEoe1/4aos own real estate and banking crises.

However, there are challenges like hydrocarbon dependence, demographics and expanding human capital because GCC is heavily dependent on imported skills. The challenge of maintaining large welfare systems with minimal taxation, lack of privatisation, corporate governance and transparency to improve the investment climate are some of the other major issues the GCC has to look after.

In the past five years GCC countries have not only enjoyed an oil bonanza but have staged an impressive large-scale socioeconomic transformation.

Eoe1/4EoOil driven liquidity and domestic credit expansion gave way to vibrant non-oil sector growth with finance, real estate, construction and services sectors contributing a third of growth, which rose from an average four per cent in the 90s to seven per cent in the boom time,Eoe1/4A[yen] said the report.

Economic revival driven by the oil windfall helped the region to fast forward the build-up of high national savings, reduce indebtedness, finance structural change, invest in social and economic projects and transform itself into a regional business hub.

Since the GCC has saved about 80 per cent of the oil windfall since 2003, nearly triple the amount saved in past oil booms, it has the means to fund growth. Eoe1/4EoAbout $2 trillion of investment projects are planned over the coming years,Eoe1/4A[yen] said the report.

Muscat Press and Publishing House SAOC 2009

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Publication:Times of Oman (Muscat, Oman)
Date:Jul 1, 2009
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