The Institute of International Finance called on Kuwait, Saudi Arabia, Qatar, Oman and Bahrain to raise domestic fuel prices in light of rising prices globally, and to use part of the resulting savings to expand social support programs.
The institute estimated that the non-oil GDP of the Gulf Cooperation Council countries will grow at an average of 4.5 percent this year, which is the highest rate among emerging and developing economies, as expectations are based on high oil prices and following sound economic policies, which will compensate for the negative impact of raising borrowing costs as a result of raising rates benefit, reports a local Arabic daily.
He stated that the low debt-to-GDP ratios and the large precautionary financial buffers in Kuwait, the UAE, Qatar and Saudi Arabia give investors confidence to be exposed to the markets of those countries, and that the GCC countries offer a relatively higher risk premium compared to emerging economies to attract investors.
He explained that the second half of this year will witness a sharp increase in the issuance of institutions (banks and non-banks) due to the great need for refinancing of loans and bonds, the terms of which are expected to come this year, pointing out that the severity of the impact of the tightening of US monetary policy depends on the growth of GDP, the non-oil realities of the GCC countries, the level of international oil prices, and the financial policies of the six countries.
The institute expected that the GCC countries will raise interest rates to about 3.7 percent by the end of the year in line with the monetary policy of the US Federal Reserve, indicating that the monetary tightening and raising borrowing costs come at a time when private credit growth is enjoying strength, especially in Saudi Arabia, Qatar and Kuwait. and Bahrain, and regional inflation pressures are moderate.
The institute pointed to the continued decline in rents (especially in the UAE and Qatar with the increase in the supply of housing), indicating that this decline counteracted the rise in food prices. He pointed out that general inflation may accelerate in the second half of this year, but it will remain below 4 percent after that average in the six countries of the Gulf Cooperation Council.
The institute suggested that the impact of the tightening of US monetary policies on Gulf banks will be limited with the rise in oil, noting that the banking system in some GCC countries, especially in Saudi Arabia, is characterized by low wholesale lending and a high level of non-return deposits.
The rises in interest rates in the GCC countries, in line with US monetary policies, could have a positive impact on the profitability of banks. Global growth forecast cut in half.
The Institute of International Finance cut its forecast for global GDP growth in half to reach about 2.3 percent in 2022, compared to its previous forecast of 4.6 percent, as a result of the high risks of recession, pointing to the economic repercussions of the Russian-Ukrainian crisis, and the tightening of monetary policy in the United States.
The institute expected growth in the United States, the euro area and Japan to reach 1.9 percent, while growth in China will decline to 3.5 percent, from its previous estimate of 5.1 percent.