(MENAFN - Khaleej Times) The accumulation of sovereign wealth is enabling governments in the Gulf Cooperation Council, or GCC, countries to raise expenditure in defiance of falling oil receipts, thus limiting the impact on corporate profits, says Moody's Investors Service in a new Special Comment.
"Despite falling oil receipts, ample sovereign wealth funds are allowing GCC governments to maintain expenditure and support government-owned corporates in the face of deteriorating fundamentals," the ratings agency said in the special comment, entitled "Gulf Corporates: The Flip-Side of
Globalisation. "In 2009, aggregate dollar spending by GCC governments is forecast to increase by between five and ten per cent," said the report that examines the main implications of the global economic crisis for GCC corporates.
According to Moody's, the global crisis, to a far greater extent than previous episodes, is being transmitted to GCC companies through their direct exposure to global economic trends, whether through lower exports, deteriorating returns on outside investments, or greater risk aversion among foreign creditors.
"As the GCC has opened itself to the outside world over the past ten years, the private sector's exposure to global economic contagion has grown. To varying degrees, GCC private sectors are experiencing the worst crisis since the oil price crash of 1998-99. However, this downturn is different to previous globally-induced oil shocks," said Tristan Cooper, Moody's Head Analyst for Middle East Sovereigns and co-author of the report.
The ratings agency said while most companies in the GCC are displaying resilience, GCC corporates are expected to scale back their investment programmes as a result of the global economic slump, greater risk aversion and tighter credit market conditions. "Although different sectors have been hit in different ways, companies that are more indebted and more exposed to external demand and price fluctuations, rather than domestic demand and public expenditure, have suffered the most," said Philipp Lotter, Senior Vice-President in Moody's Corporate Finance Group and co-author of
the report. Projects that are at an advanced phase of development and/or are considered strategic in ensuring long-term growth will likely go ahead.
"Structurally important projects are also likely to get financial support from public institutions and we expect GCC governments to use their ample reserves to finance investments that will guarantee long-term benefits for the region," Lotter said.
By Issac John