Following widespread, negative effects of the oil-price slump on Middle Eastern economies, prospects for corporates in Gulf Cooperation Council (GCC) nations are looking brighter, says a new report.
Published in early May by the International Monetary Fund (IMF), the report is part of the organisation’s Regional Economic Outlook series, with this particular edition focusing on the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region.
Recent measures from GCC governments, such as Saudi Arabia’s relaxation of the loan-to-deposit ratio and its introduction of longer-term repos, are credited in the report as positive developments for corporates in the region. The same applies to Qatar’s moves to tailor Treasury bill auction programmes to liquidity conditions.
The report also suggests that key, large-scale public events – such as Dubai’s Expo 2020 innovation showcase and Qatar’s 2022 World Cup – could provide significant economic stimulus.
“Countries will need to adapt to this environment of lower oil prices and liquidity to ensure the continued availability of credit to support the private sector,” the report points out.
In the long term, it notes, “Central banks will need to become more active liquidity managers, which will require improvements in the institutional framework in some countries.”
The report cites the reintroduction of refinancing instruments at the central bank of non-GCC nation Algeria as an example that GCC countries would do well to follow.
“Continued efforts to improve private-sector access to finance will be needed to support successful diversification,” it says.
Announcing the report’s publication, IMF Middle East and Central Asia director Jihad Azour said: “Banking-sector regulatory reforms [in the region] are progressing, and a number of countries are strengthening their resolution frameworks, including introducing bankruptcy laws and developing crisis-management frameworks.”
The measures to which he referred are the New UAE Bankruptcy Law – which came into force in the Emirates in December last year – plus similar legislation planned for Saudi Arabia and several crisis-management initiatives already underway in Kuwait.
The IMF’s views have been broadly echoed in a recent Financial Times column by George Abed, distinguished scholar at the Institute of International Finance.
“Among the six countries in the GCC, Saudi Arabia has the most developed debt securities market, while the UAE and Bahrain are not far behind,” Abed wrote.
“Stock markets in all GCC countries are well developed and reasonably well regulated, and should continue to provide a good source of funding for corporates and – through privatisation – for sovereigns and quasi-sovereign entities,” he added.