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Gulf economies to grow on average 4pct in 2011 – AMF

Bahrain to underperform after political turmoil; Foreign investors waiting to see a return to normality there; US debt unappealing to Gulf central banks

June 27, 2011 10:55 by

Gulf economies will grow on average 4 percent this year thanks to elevated oil prices but Bahrain will underperform the others because of political turbulence, the head of the Arab Monetary Fund said on Sunday.

“Prices of oil at around $100 a barrel are very lucrative for oil producers. Based on this the economic situation will continue to improve. On average 4 percent is achievable as a whole,” Jassim Al-Mannai, director general of the Abu Dhabi-based AMF, told Reuters in an interview. “In Bahrain because of the turmoil, growth could be revised down a little bit,” he said on the sidelines of the Bank for International Settlements.

Bahrain, a regional financial centre, has suffered after a month of unrest in which the government cracked down on mainly Shi’ite-led protests. Around 24 people died, banks and shops were closed and investors took flight. Economic losses reached $1 billion or about 20 percent of quarterly gross domestic product, according to NCB Capital estimates.

A Reuters poll showed that economists slashed estimates for Bahrain’s gross domestic product growth this year to 2.7 percent, on average, from 3.4 percent seen in March. For 2012 it was cut to 3.3 percent from 3.6 percent.

A national dialogue involving the government and opposition will start on July 1 but a top Bahraini Shi’ite cleric said on Friday that it looked set to fail.

“Because of the turbulence people are relatively concerned, especially investors, and they would like to make sure Bahrain is back to the normal situation for sure so that they can go back to business. They are watching the dialogue process,” Al-Mannai said.

“Foreign investors will never throw into money into the uncertain situation. It will take some time.”

The oil-rich Gulf region is home to large U.S. Treasury holdings, but low rates are making it unattractive for central banks to buy additional U.S. government debt, Al-Mannai said.

Negotiations aimed at raising the U.S. debt limit and avoiding default fell apart on Thursday as Republicans walked out over Democrats’ demand for tax increases as part of a deficit reduction plan.

A deal must be reached by Aug. 2 to avoid a potential default on the country’s $14.3 trillion debt.

“Ratings agencies…are a bit concerned about the financial situation but it does not mean necessary that the US will go into default. If there is a default, the problem is not only limited to countries associated with the dollar. It will be a catastrophe,” he said.

“I don’t think they will add more given the rate but doesn’t mean their portfolio is empty of U.S. Treasuries. From the investment point of view are they going to add more? I don’t think so.”

Earlier, UAE central bank governor Sultan Nasser Al-Suwaidi told Reuters that US Treasuries were unattractive and the central bank preferred other dollar-based instruments to manage reserves. (By Natsuko Waki; Editing by Sophie Walker)

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