Examining Gulf states financial strategies and developments

Examining Gulf states financial strategies and developments

Blog Article

GCC states are venturing into emerging companies such as renewable energy, electric vehicles, entertainment and tourism.

A Significant share of the GCC surplus money is now used to advance financial reforms and follow through ambitious plans. It is critical to analyse the conditions that resulted in these reforms and also the change in financial focus. Between 2014 and 2016, a petroleum oversupply driven by the coming of new players caused an extreme decline in oil prices, the steepest in contemporary history. Additionally, 2020 brought its very own challenges; the pandemic-induced lockdowns repressed demand, once more causing oil prices to drop. To survive the financial blow, Gulf nations resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. But, these actions were insufficient, so they also borrowed plenty of hard currency from Western money markets. Now, aided by the resurgence in oil rates, these countries are taking advantage on the opportunity to boost their financial standing, paying off external financial obligations and balancing account sheets, a move imperative to improving their creditworthiness.

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 to central banks' foreign exchange reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled straight into foreign exchange reserves as a protective measure, specifically for those countries that tie their currencies to the dollar. Such reserve are essential to preserve stability and confidence in the currency during economic booms. But, in the previous several years, central bank reserves have actually hardly grown, which shows a divergence from the conventional system. Furthermore, there has been a conspicuous lack of interventions in foreign currency markets by these states, indicating that the surplus will be diverted towards alternative options. Certainly, research has shown that vast amounts of dollars of the surplus are now being employed in innovative methods by different entities such as national governments, main banking institutions, and sovereign wealth funds. These novel strategies are payment of external financial obligations, extending economic help to allies, and buying assets both domestically and around the globe as Jamie Buchanan in Ras Al Khaimah would likely tell you.

In previous booms, all that central banking institutions of GCC petrostates desired was stable yields and few surprises. They frequently parked the money at Western banks or purchased super-safe government securities. However, the contemporary landscape shows an unusual scenario unfolding, as central banks now get a reduced share of assets compared to the burgeoning sovereign wealth funds within the region. Current data indicates 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. And they are also not any longer restricting themselves to traditional market avenues. They are providing debt to finance significant purchases. Moreover, the trend highlights a strategic change towards investments in rising domestic and international companies, including renewable energy, electric vehicles, gaming, entertainment, and luxury holiday retreats to boost the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.