GCC to experience sharpest dip in capital flows

About a year ago the Gulf economies were concerned of dealing with extensive capital inflows.

Until mid-2008, capital was pouring in regional markets on the back of possible revaluation of GCC currencies and by means of portfolio investments that were directed to stock market and real estate investments. Cross-border bank lending also soared, and most importantly the price of oil was higher by historical standards. Now capital flows have reversed.

From its peak of nearly $1 trillion (Dh3.67 trillion) in 2007, net private capital flows to emerging economies (including GCC countries) are now projected to be just $110 billion in 2009, down from $411 billion in 2008. While the fall in capital flows will adversely affect the emerging countries in varying degree, according to the Institute for International Finance (IIF), the GCC region will experience the sharpest fall in capital flows (see Table).