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DELOITTE: ALTERNATIVE SOLUTIONS NEEDED TO FUND CAPITAL PROJECTS IN GCC

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DELOITTE: ALTERNATIVE SOLUTIONS NEEDED TO FUND CAPITAL PROJECTS IN GCC

The new economic reality of lower oil prices will constrain the amount of funding available to the Gulf Cooperation Council’s (GCC) governments to finance capital and infrastructure projects it the region.  These governments will hence have to make tough choices such as cuts in public spending and introduction of structural reforms.

“Spending in the region will need to be better prioritised in order to ensure it meets social and economic development. Governments will have to seek for the private sector involvement, innovate and find alternative funding sources to fund their project requirements,” explains Cynthia Corby, Audit partner and Middle East Infrastructure and Capital Projects leader at Deloitte

These findings appeared in Deloitte Middle East’s newly released annual publication: “GCC Powers of Construction 2016: The funding equation”. The Deloitte Middle East Powers of Construction report serves as a comprehensive review of the construction industry for the sector’s leaders and shareholders. It is based on data gathered from surveys and supported by interviews with some of the most prominent construction industry leaders from the region as well as articles and interviews examining key industry trends.

According to the Deloitte report, the announced country budgets for 2016 outline cuts on spending imposed by low oil prices, but in a measured way, as well as the introduction of new income sources. Saudi Arabia (KSA) is planning to reduce spending by 11 percent this year to US$227 billion. As part of its Vision 2030 plan, the country aims to increase overall non-oil government revenue from SR163 billion (US$43.5billion ) to SR600 billion by 2020, and to SR1 trillion by 2030. Privatization of government services to encourage private sector investments – both local and international – in healthcare, housing, finance and energy sectors were announced as a key focus area for KSA. The country has gradually cut energy subsidies and increased energy prices to raise income.

The United Arab of Emirates (UAE), the most diversified economy among the GCC countries, is set to register the first current account deficit in decades, which is expected to widen to AED129 billion this year. The IMF has urged the UAE to pursue growth-enhancing reforms and advance economic diversification. In 2015, fuel subsidies were eliminated which has produced significant savings.

Qatar is intending to reduce its spending, prioritize projects and has also implemented subsidy reforms. All GCC countries plan to introduce a value- added tax by 2018 to raise non-oil revenues, and are considering taxes which are even more unusual to the GCC, such as corporate and income taxes which may become more real prospects.

The pressing need to adjust budgets might have a negative impact on the projects market resulting on slower tender processes, slower decisions and payment procedures. The pipeline of projects planned in the GCC as of May of 2016 amounts to US$2 trillion with Saudi Arabia and the UAE as the biggest project markets, with construction and transport being the two leading sectors with shares of 52 and 19 percent, respectively.

The forecast of contract awards for this year is at is at US$140 billion, about a 17 percent decline compared to 2015. Saudi Arabia has been the most impacted market and the forecast is a US$10 billion fall in contract awards to US$40 billion, though it continues to be the largest project market and the biggest spender among the GCC countries. The forecast of contract awards in the UAE is set to be stable and mainly driven by the robust construction market in Dubai.  There is a substantial amount of projects to deliver in Qatar such as stadiums, hotels, rail and roads in order to enable the World Cup and the forecasted value of contract awards stands at US$22 billon. Oman is expected to remain stable with values around US$13 billion, and Kuwait has a strong amount of planned activity for this year in the construction and transport sectors.

“There is a huge amount of project investment due to take place between now and the end of this decade. A growing population in the region will demand improved infrastructure for the cities to function and grow as planned. At a time where governments are facing budget deficits, their ability to adjust to the new environment, innovate and find alternative funding solutions to bridge the funding gaps required for ongoing investment will be key to the long term diversification success,” concludes Corby.

To read the full report, visit the following link: http://bit.ly/1RpLNTP

Finance

Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT

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Sunak warns of bill to be paid to tackle Britain's 'exposed' finances - FT 1

(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of one percentage point across all interest rates was 25 billion pounds ($34.83 billion) a year to the government’s cost of servicing its debt, Sunak told FT.

“That (is) why I talk about leveling with people about the public finances (challenges) and our plans to address them,” he said.

The government has already spent more than 280 billion pounds in coronavirus relief and tax cuts this year, and his March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.

He is also expected to announce a new mortgage scheme targeted at people with small deposits, the UK’s Treasury announced late on Friday.

Additionally, the government will also announce a new 100 million pound task force to crack-down on COVID-19 fraudsters exploiting government support schemes, it said.

(Reporting by Bhargav Acharya in Bengaluru; Editing by Leslie Adler and Cynthia Osterman)

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G20 promises no let-up in stimulus, sees tax deal by summer

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G20 promises no let-up in stimulus, sees tax deal by summer 2

By Gavin Jones and Jan Strupczewski

ROME/BRUSSELS (Reuters) – The world’s financial leaders agreed on Friday to maintain expansionary policies to help economies survive the effects of COVID-19, and committed to a more multilateral approach to the twin coronavirus and economic crises.

The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.

“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after the videolinked meeting held by the G20 finance ministers and central bankers.

The United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies through lockdowns.

But despite the large sums, problems with the global rollout of vaccines and the emergence of new coronavirus variants mean the future path of the recovery remains uncertain.

The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.

The meeting was the first since Joe Biden – who pledged to rebuild U.S. cooperation in international bodies – U.S. president, and significant progress appeared to have been made on the thorny issue of taxation of multinational companies, particularly web giants like Google, Amazon and Facebook.

U.S. Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.

“GIANT STEP FORWARD”

The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.

Scholz said Yellen told the G20 officials that Washington also planned to reform U.S. minimum tax regulations in line with an OECD proposal for a global effective minimum tax.

“This is a giant step forward,” Scholz said.

Italy’s Franco said the new U.S. stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.

The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.

On this front there was broad support for boosting the capital of the International Monetary Fund to help it provide more loans, but no concrete numbers were proposed.

To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by Trump.

“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.

While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.

The recovery is fragile elsewhere too. Factory activity in China grew at the slowest pace in five months in January, and in Japan fourth quarter growth slowed from the previous quarter.

Some countries had expressed hopes the G20 may extend a suspension of debt servicing costs for the poorest countries beyond June, but no decision was taken.

The issue will be discussed at the next meeting, Franco said.

(Additional reporting by Andrea Shalal in Washington Michael Nienaber in Berlin and Crispian Balmer in Rome; editing by John Stonestreet)

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Bank of England’s Haldane says inflation “tiger” is prowling

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Bank of England's Haldane says inflation "tiger" is prowling 3

By Andy Bruce and David Milliken

LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.

In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.

“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”

Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.

“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.

He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.

Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.

Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.

But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.

Haldane’s comments put him at the most hawkish end among the nine members of the MPC.

Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.

“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.

(Editing by Larry King and John Stonestreet)

 

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