The UAE accounts for 50 per cent of GCC foreign debt repayable in 2009, a study by Merrill Lynch economists said. GCC countries have an estimated $15 billion in foreign debt (bonds and loans) that needs to be repaid over the remainder of this year and a further $35 billion in 2009.

"The majority of outstanding debt comes from the UAE at 91 per cent and 50 per cent for 2008 and 2009 respectively while Kuwait and Saudi Arabia make up the rest of the debt for 2009 (22 per cent and 10 per cent, respectively)," Merrill Lynch economists said.

According to their report, state-owned companies account for 92 per cent of the total debt to be repaid this year and 61 per cent for next year.

"Despite their deep pockets of savings, the rapid change in the global financial scenario puts GCC countries in a tight corner. The level of private sector indebtedness has increased sharply since 2007, especially in the UAE. Given the deepening credit crunch, redemptions in the pipeline, and the surged investment activity, funding has become an issue for GCC countries," they said.

"The UAE, as the most open and most leveraged economy in the GCC, will be more adversely affected. As the tourism and trading hub of the region, global downturn should negatively impact the UAE the most. As such, we cut our 2008 and 2009 GDP growth forecasts to 6.8 per cent (from 7.2 per cent) and to 4.5 per cent (from 6.8 per cent), respectively."

They expect GCC's GDP growth to slow to 4.5 per cent in 2009 from 6.2 per cent this year. "Assuming oil prices at $90/bbl in line with our house view, the region should still enjoy a current account surplus of 20 per cent of GDP and a budget surplus of 15 per cent of GDP."

The lowest breakeven oil price that would bring 2008- 2009 budgets into balance in Saudi Arabia is $30/bbl, followed by the UAE at $40/bbl and Qatar at $55/bbl). This means that Saudi Arabia can maintain the current level of budget spending even if the oil price were to fall to $30/bbl.

Khaleej Times, UAE, October 15, 2008