Gulf to keep spending high in 2010 as oil prices up

Gulf Arab states are likely to keep their large spending packages in place next year, even as major economies withdraw stimulus, as higher oil prices give the world’s top oil exporting region enough room to support a fragile recovery.

The global financial crisis slashed income for top Arab economies — Saudi Arabia and the United Arab Emirates — making them drain reserves as they embarked on massive spending plans to help emerge from this year’s downturn.
But with oil prices more than doubling from last December’s lows of around $32 a barrel, most Gulf governments expect to book budget and current account surpluses this year and are more upbeat about 2010.

“Governments around the globe have been running expansionary policies over the past year, but in much of the world high deficits and a rising debt stock means they are running out of room. In most of the Gulf, that’s just not the case,” said Simon Williams, chief economist at HSBC Bank in Dubai.

“The Gulf’s fiscal stimulus may have arrived later than in other parts of the world but is likely to last longer because public finances here are so much stronger than in the developed world or in emerging markets.”

A debate on unwinding large piles of fiscal and monetary stimulus is flying high on policymakers agenda globally.

China decided last week to rein in some incentives, while the world’s central banks plan to withdraw trillions of dollars of support next year as economies recover.

Despite signs of improvement, the economies of Saudi Arabia and the UAE are still expected to shrink by around 1 percent this year as lending remains slow, but new inflows of oil money should help them expand by around 3 percent in 2010.

Reuters