Analysing Gulf states financial strategies and developments

Analysing Gulf states financial strategies and developments

Blog Article

To shore up their balance sheets, Arab Gulf countries are seizing the chance presented by high oil prices to improve their creditworthiness.

In past booms, all that central banking institutions of GCC petrostates wanted was stable yields and few shocks. They often times parked the money at Western banks or purchased super-safe government bonds. Nevertheless, the contemporary landscape shows a new situation unfolding, as central banks now are given a reduced share of assets compared to the burgeoning sovereign wealth funds in the area. Recent data reveals noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by venturing into less main-stream assets through low-cost index funds. Additionally, they are delving into alternative investments like private equity, real estate, infrastructure and hedge funds. Plus they are additionally no longer limiting themselves to conventional market avenues. They are providing debt to fund significant takeovers. Furthermore, the trend showcases a strategic shift towards investments in growing domestic and worldwide industries, including renewable energy, electric vehicles, gaming, entertainment, and luxury holiday retreats to aid the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point approximately two-thirds of a trillion dollars. In the past, most of this surplus would have gone straight into central banks' foreign exchange reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a protective strategy, especially for those countries that peg their currencies to the dollar. Such reserves are crucial to preserve growth rate and confidence in the currency during financial booms. But, into the past few years, central bank reserves have hardly grown, which indicates a diversion from the conventional strategy. Also, there is a conspicuous lack of interventions in foreign exchange markets by these states, indicating that the surplus has been redirected towards alternative options. Certainly, research indicates that vast amounts of dollars from the surplus are increasingly being used in innovative ways by various entities such as national governments, central banks, and sovereign wealth funds. These unique methods are payment of outside financial obligations, expanding economic assistance to allies, and acquiring assets both domestically and internationally as Jamie Buchanan in Ras Al Khaimah would likely tell you.

A Significant share of the GCC surplus cash is now utilized to advance economic reforms and follow through impressive strategies. It is important to examine the circumstances that produced these reforms plus the change in financial focus. Between 2014 and 2016, a petroleum oversupply driven by the emergence of the latest players caused an extreme decline in oil prices, the steepest in contemporary history. Furthermore, 2020 brought its unique challenges; the pandemic-induced lockdowns repressed demand, once more causing oil prices to plummet. To hold up against the monetary blow, Gulf countries resorted to liquidating some foreign assets and sold portions of their foreign exchange reserves. Nonetheless, these actions proved insufficient, so they additionally borrowed plenty of hard currency from Western capital markets. Now, with the revival in oil prices, these countries are benefiting of the opportunity to beef up their financial standing, paying off external financial obligations and balancing account sheets, a move imperative to improving their creditworthiness.