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Dubai: Managing the windfall oil revenues of the last years is a continuing challenge for oil exporters, a World Bank report says.
"The risk of overheating domestic demand and its potential inflationary consequences loom as an overarching threat," the bank's Global Development Finance 2007 report, released yesterday and obtained by Gulf News, says.
"It appears, however, that in contrast with earlier episodes of oil booms, judicious use of oil stabilisation funds and other financial management approaches have served to counter overheating and to augment the non-oil supply potential of the economy. Continued pursuit of these approaches should remain a priority."
The emergence of large-scale capital flows within the broader region, largely among the GCC and from GCC to the resource-poor economies in the region, offers new opportunities as well as risks, it says.
"The 2005-06 crash of GCC equity markets serves as a reminder of the potential of overshooting in a new financial environment."
Meanwhile, net private capital flows into the Middle East and North Africa (Mena) region reached Dh94.97 billion ($25.88 billion) last year, or four per cent of the global total of $647 billion, according to the World Bank report.
"Net private capital flows to developing countries reached a record $647 billion in 2006, although the rate of growth of these flows slowed from 34 per cent in 2005 to 17 per cent in 2006," it said.
Equity flows
Equity flows exceeded $400 billion in 2006, accounting for almost three-quarters of capital flows, up from two-thirds in 2004, the report finds. Cross-border mergers and acquisitions boosted FDI flows to developing countries in 2006 to $325 billion, roughly one-fourth of worldwide flows of $1.2 trillion.
"The expansion in private capital flows in 2006 speaks well for developing countries' resiliency, but what is worrying is that it has coincided with a decline in net official lending and a delay in delivering on aid commitments," said Francois Bourguignon, World Bank chief economist and senior vice-president for Development Economics.
"Tourism revenues, which rose to $17.8 billion in 2006, account for seven per cent of the region's external receipts, and an even larger share for resource-poor countries," the report says.
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