Investing in new realities: GCC challenges | GulfNews.com:
"During a financial crisis or in times of uncertainty, it is possible to miss the big picture. Years of strong oil prices have enabled GCC governments and their respective economies to increase their spending and build reserves. Saudi Arabia, the largest economy in the region, serves as a proxy to study. Contextually, it may be relevant to compare three time periods to appreciate the bigger picture: 1998, 2008 and 2014. According to the Institute of International Finance and the World Bank, during the last 15 years, the region witnessed three inflection points where it has braced the lowest oil price (1998), suffered collateral damage inflicted by the global financial crisis (2008) and experienced steep oil price decline (2014).
As compared to 1998, the GCC region today is well poised to weather any storm given the large surpluses that it has built during this period. Saudi Arabia’s foreign reserves, at about $800 billion, are nearly 17 times greater than they were in 1998. The period marked an increase in the overall economy, in terms of Gross Domestic Product (GDP) and the attendant increase in stock market capitalisation and liquidity. During this period, the population also increased. Growth in GDP outpaced population growth and this has resulted in higher growth per capita.
It is also insightful to focus on spending for Saudi Arabia. From a modest $50 billion (Dh183.6 billion) in 1998, overall spending has increased fivefold to $260 billion; current expenditure increased by a factor of 4, while capital expenditure increased by a factor of 16. These expenditure increases most likely explain the lower fiscal balance today compared to earlier inflection periods. During this period, the stock market soared from an index level of 1400 to 7900, though in the interim it had reached 20,000. Measured in GDP terms, the market cap/GDP ratio is still a modest 55%, providing room for significant market cap expansion."
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