Business

DUBAI — Standard and Poor's (S&P) does not expect Gulf states to drop their long-term monetary link to the US dollar after the sharp drop in oil prices and fiscal reserves.

"We expect [Gulf Cooperation Council] GCC countries to maintain the exchange rate peg over the medium term, mainly because we assess GCC states as having sufficient funds available to defend their currencies," the ratings agency said recently .

Five of the GCC states — Bahrain, Oman, Qatar, Saudi Arabia and United Arab Emirates — peg their currencies to the greenback while Kuwait links its dinar to a basket of currencies.

Due to the sharp drop in oil prices, most GCC states have posted a budget deficit and resorted to their fiscal reserves to finance the shortfall.

Speculation has increased recently about GCC states ending the dollar peg in favour of a flexible exchange rate regime because of the divergence between slowing GCC economies and the US economy.

In December 2015, most GCC states raised their interest rates to follow similar measures by the US Federal Reserve.

"At a time of already significant change and regional geopolitical instability, politically conservative regimes such as the GCC are unlikely to decide to increase uncertainty about their economic stability by amending this fundamental macroeconomic policy," S&P said.

The inflationary and social repercussions of a lower exchange rate are likely to outweigh the benefit to the fiscal budget, the agency added.

If the exchange rate loses value as a result of de-pegging, the GCC states could become less attractive to foreign investors, it remarked.

Saudi Arabia last month said its currency was stable despite volatility in the futures market and that it would maintain the peg to the dollar.

"In our view, the GCC pegs are to a large degree consistent with the reliance of their economies, to varying degrees, on US dollar-based oil revenues," S&P said. 

"Over the longer term, should GCC economies continue to diversify, the case for more exchange rate flexibility is likely to become more convincing," it added.

SARAJEVO — With 360 villas and apartments around an artificial lake, swimming pools, a halal supermarket and a Muslim prayer area, the “Sarajevo resort” is one of Bosnia's most ambitious residential projects to date.

It is one of dozens of real estate ventures in the picturesque hills surrounding the capital of the Balkan country that are specifically targeting visitors from Gulf states.

The lush greenery of the country has in recent years become a magnet for wealthy Arabs looking to escape the Middle Eastern summer heat. The result has been a massive boost to tourism in what is one of Europe's poorest countries.

"People from the Gulf are attracted by the natural beauty, the presence of Islam and the warmth of Bosnians," said Tarek Al Khaja, Emirati co-owner of tourist and real estate agency Al Suwaidi and Al Khaja. "They feel welcome here."

Al Khaja, who opened his business three years ago in a Sarajevo suburb, said the housing and real estate market was in "constant growth".

Prices, he added, had increased "up to 100 per cent in three years" in the Sarajevo region of Bosnia, a nation still rebuilding after its devastating 1990s inter-ethnic war.

In 2010, Bosnia began phasing out visas for nationals of most Gulf countries and the number of tourists from the region has since steadily increased to 24,500 out of 360,000 visitors to the Sarajevo area last year, according to official figures. 

"They are not the most numerous, but these Gulf tourists spend much more than others, about 150 euros per day per person, in addition to hotel costs," indicated Asja Hadziefendic Mesic, spokeswoman for the Sarajevo tourist board.

'Our brothers'

At the October opening of the Sarajevo resort, a 25-million-euro ($27-million) Kuwaiti investment, local schoolchildren waved the flags of both Bosnia and Kuwait as Bosnian Muslim political leader Bakir Izetbegovic hailed the country's rivers and greenery.

"Bosnia is a European country... it has water, forestry, mining, and energy and tourism potential. Our brothers [from the Gulf] spotted this," he said.

About 20 kilometres away in Blazuj village, another residential area is being built by the Kuwaiti company Al Diyar, which sold almost all of its luxury apartments in advance to Gulf nationals.

"So far we have invested 14 million euros. The customers are different, there is no profile," said director Abdullah Al Kulaib. 

"We had those who knew nothing about Bosnia, who never set a foot here, even some who do not like nature, but they are buying," he added, noting that the company was preparing another six similar projects.

The grandest of the proposed ventures comes from Emirati company Buroj Property Development, which in October announced a 930-million-euro investment to build an entire "tourist city" on a plot of 137 hectares.

Work is set to begin in April on the complex at the foot of Bjelasnica, one of four mountains surrounding Sarajevo. The design includes thousands of homes, several hotels, a shopping mall and a hospital.

One of the key drivers in attracting Arab investment has been the Bosna Bank International (BBI), founded in Sarajevo in 2000 by Gulf banks on Islamic banking principles, which organises an annual conference to draw such finance to the Balkans.

"This is just the beginning, we just opened the door," said Amer Bukvic, BBI director.

He suggested that political instability in the Middle East has also fuelled Gulf nationals' interest in buying a pied-à-terre in Europe, "in case it is needed".

'Mosques everywhere' 

The facilities already in place for Bosnia's Muslims, about 40 per cent of the 3.8 million-strong population, make the country an especially attractive choice for such visitors.

"When they want to eat in restaurants, they don't have to ask whether it is halal. There are also mosques everywhere where they can pray," said Al Khaja.

During and after Bosnia's 1992-1995 war, Gulf countries offered humanitarian aid and financed the reconstruction of homes and mosques, often accompanied by stricter interpretations of Islam, such as Saudi Wahabism.

A small minority of Bosnian Muslims adopted these stricter forms, and local analysts have consistently warned against the religious influence that accompanied foreign aid.

While hoteliers and restaurateurs now welcome the injection of Arab tourists' cash, even offering menus in Arabic, others have observed the phenomenon with caution.

Some media outlets and users of online forums have spoken of an "invasion" or even suggested that the region around the capital is becoming an "emirate".

"The Gaza Strip of Sarajevo", appeared as a September headline in the magazine Slobodna Bosna (Free Bosnia).

A hotelier in the capital, declining to be named, told AFP that he had benefited from the "rush" of Gulf tourists in recent years, but was firmly opposed to the construction of neighbourhoods intended only for Arab customers.

"They will use these houses and apartments maybe a month or two a year, paying once at the beginning and never again," he said. "The best tourist for a country is the one who rents a hotel room." 

WASHINGTON — The International Monetary Fund (IMF) has overhauled its lending rules for heavily indebted countries, including a rule created in 2010 to allow it to aid Greece.

Last week, the IMF abandoned the "systemic exemption" rule which it used to justify giving Greece a massive bailout despite doubts about the sustainability of the country's sovereign debt.

At the time, the crisis lender decided that a Greek debt restructuring could pose severe negative spillovers on the rest of the eurozone, thus the need for the exemption.

In a report published last week, the IMF acknowledged that this controversial rule "did not prove reliable in mitigating contagion" and posed "substantial" costs and risks for the IMF and member countries.

In addition, it could encourage creditors to over-lend to a country on easier terms because they believe the country would likely receive a public bailout in a crisis, it said.

The measure had stirred criticism, notably from some emerging-market countries that saw it as giving favourable treatment to European states, but it was also under fire from US Republican lawmakers who called for its end.

The new rules drop that exemption and focus on a "gray" zone in which a country's debt has not been deemed sustainable with "high probability", one of the IMF's core lending rules, and restructuring of its sovereign debt is considered too risky.

In this case, the IMF can offer financing on the condition that the country receives in parallel, from public or private creditors, sufficient funds to allow it to return to debt sustainability and ensure the crisis lender will be repaid.

The new policy does not "automatically presume" a restructuring of sovereign debt at the outset of aid when debt is in the gray zone.

If the country loses access to financial markets, a "reprofiling" of debt would typically be appropriate and would give the country more breathing room in adjusting to conditions of the IMF loan.

In cases where debt restructuring would be too risky for financial stability, the IMF could lend under the condition that other public creditors ease their conditions for repayment.

This last measure reflects the current negotiations on the European Union's (EU) third bailout for Greece, under which the IMF will only participate financially if the Europeans ease Greece's debt burden.

Some member states of the 28-nation EU have rejected that option, arguing that European treaties prevent them from erasing debt.

Separately, the IMF warned Europe of the economic challenge of the refugee crisis and urged it to work harder to assimilate migrants.

"The tide of refugees is presenting major challenges to the absorptive capacity of EU labour markets and testing political systems," the IMF said in its updated global economic outlook.

"Policy actions to support the integration of migrants into the labour force are critical to allay concerns about social exclusion and long-term fiscal costs," it added. Such efforts could "unlock the potential long-term economic benefits of the refugee inflow”.

TOKYO — The Bank of Japan (BoJ) unexpectedly cut a benchmark interest rate below zero on Friday, stunning investors with another bold move to stimulate the economy as volatile markets and slowing global growth threaten its efforts to overcome deflation.

Global equities jumped, the yen tumbled and sovereign bonds rallied after the BoJ said it would charge for a portion of bank reserves parked with the institution, an aggressive policy pioneered by the European Central Bank (ECB).

"What's important is to show people that the BoJ is strongly committed to achieving 2 per cent inflation and that it will do whatever it takes to achieve it," BoJ Governor Haruhiko Kuroda told a news conference after the decision.

In adopting negative interest rates, Japan is reaching for a new weapon in its long battle against deflation, which since the 1990s have discouraged consumers from buying big because they expect prices to fall further. Deflation is seen as the root of two decades of economic malaise.

Kuroda said the world's third-biggest economy was recovering moderately and the underlying price trend was rising steadily.

"But there's a risk recent further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people's deflationary mindset," he added.

"The BoJ decided to adopt negative interest rates... to forestall such risks from materialising," Kuroda continued.

The governor said as recently as last week he was not thinking of adopting a negative interest rate policy for now, telling parliament that further easing would likely take the form of an expansion of its massive asset-buying programme.

But, with consumer inflation just 0.1 per cent in the year to December despite three years of aggressive money-printing, the BoJ's policy board decided in a narrow 5-4 vote to charge a 0.1 per cent interest on a portion of current account deposits that financial institutions hold with it.

The central bank said in a statement announcing the decision it would cut interest rates further into negative territory if necessary, in its battle against deflation.

"Kuroda had been saying that he didn't think something like this would help so it is a bit surprising and it's clear the market has been surprised by it," said Nicholas Smith, a strategist at CLSA based in Tokyo.

Some economists doubted the BoJ move would prove effective.

"It has gone on the defensive," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "It made this decision not because it's effective, but because markets are collapsing and it feels it has no other option."

Going negative

Several European central banks have cut key rates below zero, and the ECB became the first major central bank to do so in June 2014.

In pursuing the same path, the BoJ is hoping banks will step up lending to support activity in the real economy, rather than pay a penalty to deposit excess cash at the central bank.

There is little sign of any pent-up demand from Japanese banks or cash-rich companies for fresh funds, however, and any money released into the system may merely be hoarded or steered into speculative activity.

"This is an aggressive all-stick-no-carrot approach to spurring investment," indicated Martin King, co-managing director at Tyton Capital Advisors in Tokyo.

The BoJ maintained its pledge to expand base money at an annual pace of 80 trillion yen ($675 billion) via aggressive purchases of Japanese government bonds (JGBs) and risky assets conducted under its quantitative and qualitative easing (QQE) programme.

The BoJ's move, boosting the dollar by 1.7 per cent against the yen, could make it even harder for the US Federal Reserve to raise interest rates four times this year, as originally envisaged by its policy board.

‘Regime change’

Markets have been split on whether Japan's central bank would ease policy as slumping oil costs and soft consumer spending have ground inflation to a halt, knocking price growth further away from the BoJ's ambitious 2 per cent target.

This is the fourth time the BoJ has pushed back its time frame for hitting its inflation target, from an initial goal of around March 2015.

Friday's surprise interest rate decision came in the wake of data that showed household spending and output slumped in December, underscoring the fragile nature of Japan's recovery.

Many analysts had already been suggesting that the BoJ had little scope left to expand its asset-buying programme.

"I think this is a regime change and the BoJ's main policy tool is now negative interest rates," said Daiju Aoki, an economist at UBS Securities in Tokyo. "This shows that the ability to buy more JGBs is limited."

Kuroda noted that the BoJ was not running out of policy ammunition.

"Today's steps don't mean that we've reached limits to our JGB buying," he said. "We added interest rates as a new easing tool to our existing QQE framework."

AMMAN — Arab Bank announced in a press statement on Saturday that net operating income at the end of 2015 amounted to $1.1 billion. 

According to the statement, net income after tax and provisions stood at $442 million compared to $557 million in 2014 after taking into account $349 million as legal provisions.

"This follows a settlement agreement which was entered into without any admission of wrongdoing and upon terms satisfactory to the bank with respect to the legal case which was filed against the bank in New York 11 years ago," the statement said.

"The bank has been setting aside provisions for the case during the past several years which at the end of 2015 stood at $1 billion and which will cover the expected obligations under the settlement agreement," it added.

Aside of this allocation, the underlying performance of the bank was strong in 2015. 

Excluding the effect of foreign currency devaluations, loans and advances rose  by 3 per cent to $23.8 billion and customer deposits grew by 3 per cent to $35.2 billion. 

Total group equity was given at 48 billion and capital adequacy ratio was at a healthy level of 14.2 per cent. Liquidity continues to be high with a loan to deposit ratio of 67.6 per cent.

Chairman Sabih Masri attributed the strong underlying performance of the bank to the success it has had in growing its business across different markets while at the same time managing risks very effectively. 

"Arab Bank succeeded in growing its operating profit by taking advantage of the broad diversification of its business in Jordan and across the region," he said in the statement.

Chief Executive Officer Nemeh Sabbagh stated that the bank succeeded in growing its revenues and in controlling its expenses which allowed it to achieve a healthy cost-income ratio of 42.3 per cent. 

He indicated that the bank’s loan portfolio continues to be healthy with the ratio of non-performing loans to gross loans improving to 4.8 per cent despite the challenging conditions in the region. 

"Credit provisions held against non-performing loans stood at a comfortable 109 per cent, excluding the value of collaterals held," he said.

Masri expressed his full confidence in the bank’s ability to maintain its leading position regionally and to continue achieving its targeted objectives.

In light of this strong performance, the board of directors is recommending the payment of cash dividends at a rate of 25 per cent.

The bank’s results are subject to the final approval of the Central Bank of Jordan.

KUWAIT CITY — Kuwait, a member of the Organisation of Petroleum Exporting Countries (OPEC), projected a record budget deficit for the fiscal year starting April 1 on the sliding price of oil, the finance ministry said on Thursday.

The shortfall for the 2016-17 fiscal year is estimated at 11.5 billion dinars ($38 billion) or a massive 30 per cent of gross domestic product (GDP) due to a sharp decline in oil revenues, the ministry indicated on its Twitter account. 

Spending was estimated at 18.9 billion dinars, just 1.6 per cent lower than in the current year, the ministry added.

Revenues were projected at 7.4 billion dinars ($24.4 billion) of which oil income was estimated at $19.1 billion or just 78 per cent of the public revenues.

In the past, income from oil contributed more than 94 per cent of revenues in the Gulf emirate, before the decline in crude prices.

The budget was approved at a joint meeting of the Cabinet and the supreme planning council on Wednesday night.

The oil income estimate for 2016-17 is 46 per cent lower than in the current year, and 74 per cent below the actual oil revenues in 2014-15, the ministry elaborated.

The oil revenues are calculated on the basis of a crude price of $25 a barrel, down from the current year's $45 a barrel.

The price of Kuwaiti oil dived to as low as $19 a barrel last week. Currently it is hovering around $23 a barrel.

Kuwait has projected a shortfall of $23 billion in the current fiscal year, the first deficit after 16 years of surplus.

The Gulf state, which has a native population of just 1.3 million, has built around $600 billion in fiscal reserves in those years.

Figures posted on the finance ministry website show that actual income earned in the first three quarters of 2015/2016 fiscal year amounted to $37.6 billion, or 46.2 per cent lower than last year.

The Gulf state posted a provisional deficit of $8 billion in the first nine months. The shortfall normally swells in the last quarter due to accounting adjustments.

All the Gulf Cooperation Council (GCC) states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates — have posted deficits after oil prices lost three quarters of their value since mid-2014.

The Gulf states have announced a series of austerity measures that included raising the prices of fuel products, electricity, water and others.

Kuwait has liberalised the price of diesel and kerosene and is considering cutting subsidies on other services.

But it is facing difficulties to cut spending which has increased more than four folds since 2006, mostly on wages and subsidies, according to official figures.

The wage bill in the new budget is estimated at $34 billion or 55 per cent of total spending while subsidies account for 15 per cent.

LONDON — British economic growth slowed sharply last year, dented by global financial turbulence, but showed modest signs of recovery in the final quarter, official data showed Thursday.

Gross domestic product (GDP), the total value of all goods and services produced in the economy, expanded by 2.2 per cent in 2015, down from 2.9 percent in 2014, the Office for National Statistics (ONS) indicated in a statement.

GDP, meanwhile, grew 0.5 per cent in the October-December period compared with the previous three months.

That met market expectations and marked a modest acceleration from 0.4 per cent in the third quarter.

"These figures show Britain continues to grow steadily," said Finance Minister George Osborne. "Despite turbulence in the global economy, Britain is pushing ahead."

"With the risks we see elsewhere in the world, there may be bumpy times ahead — so here in the UK we must stick to the plan that's cutting the deficit, attracting business investment and creating jobs," he added.  

Osborne had warned earlier this month that Britain's economy faced a "dangerous cocktail of new threats" such as falling commodity prices, recessions in Brazil and Russia and rising tensions in the Middle East.

Economists meanwhile warn that this year's outlook is clouded by an expected referendum on whether Britain should leave the European Union (EU).

"The uncertainty surrounding the vote may prompt a slowdown in the pace of hiring and investment, and as such we may see some weaker growth figures around the time of the referendum," said ING economist James Smith.

Prime Minister David Cameron called the referendum after winning last year's general election.

Opinion polls currently point to a slender lead for those who want out of the EU.

Separately, British opposition leader Jeremy Corbyn said this month that he would stop big companies from distributing dividends unless they paid their workers the living wage as part of his proposals to promote fairer working conditions.

Corbyn, a socialist who won control of the Labour Party in September, said too much of the proceeds of growing company profits benefit the wealthiest and called for "pay ratios" to be introduced to help tackle income inequality.

"Only profitable employers will be paying dividends. If they depend on cheap labour for those profits then I think there's a question over whether that's a business model to which we should be turning a blind eye," Corbyn told a socialist conference in London, his first major speech of the year.

Britain has already announced a compulsory “national living wage” of at least £7.2 ($10.26) an hour for people aged over 25 in April, rising to around £9.35 an hour by 2020.

Corbyn's proposals were criticised by a leading employers' group, the Confederation of British Industry (CBI), which said it did not support his idea of intervening in company wages.

"The idea of politicians stepping into the relationship between a private company and its shareholders would be a significant intervention, and not one that we would support," Matthew Fell, CBI chief of staff, added in a statement.

Corbyn, whose election was seen as a major shift back to the political left for the Labour Party, also proposed maximum "pay ratios" between the highest and lowest salaries within companies.

He said Britain's pay inequality was only second to the United States among the Group of Seven (G-7) economic powers.

"Not only is this unfair, it actually holds back growth. A more equal society is not only fairer, it does better in terms of economic stability and wealth creation," he added.

Corbyn's leadership has split Labour lawmakers between his left-wing allies and moderates, some of whom have questioned his ability to lead the party to victory in a 2020 election.

FRANKFURT — Germany's Bundesbank took more than 200 tonnes of its gold back to Frankfurt from overseas last year, the central bank said on Wednesday, as it moves towards hoarding half of the world's second-largest reserve at home.

In the wake of the eurozone crisis, many ordinary Germans want to see more of the 3,381 tonnes of gold in vaults at home and some have even questioned whether it still exists, prompting the Bundesbank to recently publish a long list of gold bars.

Just over 40 per cent of the reserve, which Germany started building in the post-war boom years, is now held underground at the Bundesbank in Frankfurt, while almost the same amount is stored at the Federal Reserve in the United States.

Holding gold reserves abroad is a legacy of the Bretton Woods system of currency management established after World War II. Much of the precious metal stayed there during the Cold War, when the former Soviet Union occupied eastern Germany.

As well as the reserves in the United States another 400 tonnes of German gold are held by the Bank of England. London and New York are centres for gold trading as well as home to two global currencies and, in an emergency, gold stored at those centres could be converted into sterling or dollars.

France, Germany's closest political ally in the eurozone, keeps less than half the amount stored in London and will have none at all by 2020 when half of the overall reserve will be guarded in Germany's financial centre.

The impact of the global financial crisis has been mild in Germany compared with other European countries, but many Germans are suspicious of the euro project after an economic crisis almost fractured the currency, used by 19 European countries.

In uncertain times, gold is considered a safe asset, even though its value has recently fallen.

Proof that it is still in safe hands is important for many Germans. The Bundesbank said all gold bars are "thoroughly and exhaustively inspected and verified" on arrival.

Germany's gold holding, which is valued at roughly $130 billion, is the second biggest in the world, after the United States. The German reserve is roughly twice that of China, according to the World Gold Council, an industry body.

Separately, Germany has lowered its growth forecast for 2016 in the face of an emerging market slowdown that is dampening exports, leaving domestic demand as the sole pillar of support for Europe's biggest economy this year.

Presenting the government's annual economic report, Vice Chancellor Sigmar Gabriel said on Wednesday the economy was in good shape but the government and companies alike needed to beef up investment to keep Germany competitive.

"We're doing well in Germany, but for that to remain the case we need to invest more," Gabriel told a news conference.

In 2015, state spending rose to nearly 30 billion euros  ($32.63 billion), pushing up the public sector investment ratio to 20.45 per cent of gross domestic product, slightly above the international Organisation for Economic Cooperation and Development average, he noted.

Still, the government needed to speed up digitisation, do more to promote electric cars and facilitate private investment, Gabriel said, adding that Finance Minister Wolfgang Schaeuble's goal of a balanced budget should not be seen as a dogma.

In its annual economic report, the government expects private consumption and state spending to drive economic growth by 1.7 per cent this year, on a par with the 2015 performance, but below a previous forecast of 1.8 per cent.

The report underlined a fundamental shift in Germany's economy away from a reliance on exports and towards more domestic-driven growth as demand from China and other emerging markets is waning.

Berlin expects imports to rise at a faster rate than exports throughout 2016, meaning net foreign trade is likely to clip off 0.4 percentage points of economic growth.

This is a remarkable development for an economy that for decades has relied mainly on exports to countries around the globe, led by its engineering and auto sectors.

Capital Economist analyst Jennifer McKeown remarked that even a sharp slowdown in China would not be enough on its own to push Germany into recession. 

"But if, contrary to our forecasts, a slowdown in China prompted a more generalised slowdown in global demand, this would hit the German economy very hard," she said.

The shift leaves domestic demand as the sole propellant of growth this year and probably beyond. Berlin expects a rise in consumer spending by 1.9 per cent and spikes in construction investment by 2.3 per cent and of state spending by 3.5 per cent.

Rising real wages, rock-bottom interest rates and record-low car fuel costs due to the plunge in oil prices are giving a strong boost to consumer purchasing powers.

RIYADH — By abandoning the tight rein it held for decades on the oil market, Saudi Arabia launched a battle for control that sent crude prices plummeting.

It has been a painful fight, experts say, but with its vast resources the Gulf kingdom is showing no signs of giving up.

The huge drop in oil prices since mid-2014, from more than $110 a barrel to around $30, followed a decision by the Saudi-influenced Organisation of the Petroleum Exporting Countries (OPEC) not to cut output as it had in the past to keep prices high.

The move came as traditional suppliers like Saudi Arabia were facing increasing pressure from new market players, in particular US shale producers, and aimed to squeeze them out.

It also sought to put pressure on non-OPEC member Russia, the biggest global oil producer, and to force a trimming of output by fellow OPEC member Iran, Riyadh's regional political rival.

As the freefall in prices has continued, calls have grown on Riyadh and its Gulf Arab neighbours to reconsider.

With the market awash in crude, even the chairman of state-owned oil giant Saudi Aramco has said prices have reached "irrational" levels.

But still Riyadh has given no indication of wavering.

"The Saudis are well aware that if they cut production, it will not greatly impact prices because their cut will be replaced by other producers like Iran, Iraq, Russia," said oil expert Jean-Francois Seznec at Georgetown University.

'Protecting market share' 

"The Saudis want producers to suffer enough to agree to a negotiated cut across the board," Seznec added.

Saudi Arabia, the world's second-biggest oil producer and largest exporter, spent tens of billions of dollars in the past two decades to raise its crude production capacity to 12.5 million barrels per day.

It became the only producer with spare capacity, allowing it to raise and lower production to influence the market.

The kingdom boasts the world's second-largest crude reserves, at 268 billion barrels, and sits on the fifth-largest natural gas deposits, at 8.5 trillion cubic metres. 

At less than $10 a barrel, its production cost is also the second cheapest in the world, according to Rystad Energy, a private consultancy.

"Saudi Arabia's main goal is achieving stability in the oil market and protecting its market share," Kuwaiti oil expert Kamel Al Harami said.

"The kingdom could not let high-cost producers compete in its own markets," Harami added.

Saudi Arabia and its Gulf peers in OPEC also have huge fiscal cushions to cope with low oil prices, accumulated in the years when oil prices were high.

So while Saudi Arabia's oil revenues have plunged, leading to a record $98 billion budget deficit for 2015, the kingdom can still count on more than $600 billion in reserves.

"There is no wish to cut production when you have costs lower than the others and ultimately you can resist longer than the others," Patrick Pouyanne, the chief executive officer of French oil giant Total, told AFP during the recent World Economic Forum in Davos.

Producers 'cannot bleed forever' 

"We have scale. We have technologies that have allowed us to maintain our low cost," Aramco Chairman Khalid Al Falih said at the Global Competitiveness Forum in Riyadh this week.

"That is going to be even sharper in a more low-price environment," he added, noting that the company's investments had not slowed down despite the price fall.

In a report on Monday, Jadwa Investment in Riyadh said Saudi Arabia remains the only country with spare production capacity, leaving it "well equipped to hold off any attempts of encroachment on its market share".

So far, Harami remarked, the battle is not yet won.

"Shale oil has proven to be much more resilient than they had initially expected," he said.

But a Western diplomat based in Riyadh said the Saudi oil policy reflects a more assertive attitude under King Salman, who took power a year ago, and is unlikely to be abandoned.

The kingdom will "defend its interests internally and externally" whether that pleases outsiders or not, the diplomat said, speaking on condition of anonymity.

And Seznec said he expects the strategy to start yielding results in the near future.

"I think sooner rather than later there will be an arrangement with non-OPEC producers, who cannot continue to bleed forever," the analyst added.

Separately, the president of Saudi Aramco said on Tuesday  that global crude prices should recover near the end of this year.

"Our prediction is that we will see some adjustment but it will happen toward the end of this year," Amin Al Nasser, president and chief executive officer of the state-owned company, told a business forum in the Saudi capital.

"I think with low oil prices, demand will hopefully also increase... and as such the gap between supply and demand will start closing," Nasser told the Global Competitiveness Forum organised by the Saudi Arabian General Investment Authority (SAGIA).

Nasser said prices will not return to the $100 level, but "it will definitely be better than what we are seeing today."

The price drop led oil-dependent Saudi Arabia to impose unprecedented cuts in its 2016 budget and to push economic diversification.

Authorities are even considering a share listing of Aramco.

A SAGIA official, Abdulmohsen Al Majnouni, told AFP that the kingdom had already been working towards economic diversification even before the dramatic oil price drop.

"But we could have maybe done a better job," he said.

Deputy Crown Prince Mohammed Bin Salman, who heads the main economic affairs council, "is really keen to make this happen", Majnouni said in an interview.

The kingdom is currently focused on three main sectors: transportation, including the $22.5 billion Riyadh metro system; healthcare; and industrial parts and equipment for the kingdom's major corporations including Saudi Aramco, petrochemicals giant SABIC and the Saudi Arabian Mining company, Ma'aden.

Other sectors are also being looked at, such as paints and coatings to serve the kingdom's demand for housing, electrical generation and desalination of water for the desert nation, Majnouni said.

He said SAGIA identified six major investment barriers including the length of time to start a business, and "a major challenge" with cross-border shipment of goods.

"We're working together to overcome this," he said.

An oil industry expert, who asked not to be named, told AFP on Monday that despite high-level talk of diversification, a lack of skills and training is hindering the process.

But Majnouni said the kingdom has set up more than 100 "colleges of excellence" to address specific technical training needs.

He added that over the next five years the skills of members of the workforce "will hopefully be improved".

LONDON — Investors are looking more urgently for buy-to-let (BTL) properties in Britain ahead of the introduction of a tax hike aimed at cooling one engine of the country's housing market.

The Royal Institution of Chartered Surveyors (RICS) said demand for new properties hit a three-month high in December 2015 after Finance Minister George Osborne announced a higher rate of tax on the purchase of properties for rental purposes that is due to take effect in April.

RICS said the increase in demand helped nudge its monthly house price balance up to +50 from +49 in November, in line with a Reuters poll of economists, although it remained below a 15-month high reached in August.

The survey's measure of house price expectations reached its highest level since April 2014 and Simon Rubinsohn, RICS's chief economist, said a further heating up of the housing market was likely before April.

"The deadline for the increase has prompted many investors to bring forward buying decisions and contributed to a general increase in buying activity," Jeremy Leaf, a London-based property valuer, indicated in a statement issued by RICS.

British housing prices have risen sharply over the past two years, helped by record-low interest rates, a big increase in employment and a shortage of properties on the market.

Those increases have added to the appeal of BTL for investors who are often individuals who hold at most a handful of homes. Buy-to-let accounted for almost one in four house purchases funded by a mortgage last year, a chunk of the market unseen in other big economies.

Overall there are nearly 2 million private landlords in Britain, owning almost 20 per cent of homes.

But the government is now trying to put a dampener on the sector as it tries to help get more people on the property ladder, one of its main messages to voters.

Osborne announced in a budget statement in November that BTL investors will have to pay a 3 percentage-point higher rate of stamp duty than residential buyers from April.

Separate figures showed gross mortgage lending for 2015 reached its highest level since 2008 at £220 billion ($311 billion), but there were signs of a slowdown in borrowing by house-buyers going into this year.

Britain's Council of Mortgage Lenders (CML) said its figures, which are not seasonally adjusted, showed gross lending fell slightly in December.

"Upside potential looks limited over the near-term, as the supply of existing and new properties on the market remains weak, and affordability pressures weigh on activity," CML economist Mohammed Jamei said.

But he noted that the BTL tax changes were "an added element of uncertainty", and some RICS members reported that first-time buyers were holding off in the hope of price falls after April.

As well as the planned tax increase, the Bank of England (BoE) is seeking power to curb lending to the buy-to-let sector. 

Separately, tougher times now lie ahead for Britain's army of small-time landlords after having pocketed some of the most lucrative returns available to investors in recent decades and been a staple of newspapers' personal finance pages.

So-called BTL investors have enjoyed 20 years of surging house price growth and rents, and annual returns of nearly 10 per cent.

Their power is politically sensitive in a country where house prices border on a national obsession, reflecting the fact most people have the vast bulk of their assets tied up in their home. 

Critics argue buy-to-let distorts the market and makes it even harder for ordinary people to get on the housing ladder.

Now the landlords face a double threat. Osborne is squeezing more tax from BTL investments, partly to help fund incentives for new homeowners, while the BoE is seeking powers to limit the size of BTL mortgages in order to reduce risky lending.

A few economists say the changes could even push the overall housing market down later this year.

One landlord who fears he will have to sell is Chris Cooper. The 54 year-old airline steward must retire at 60, and started acquiring buy-to-let properties over 14 years ago in order to boost his pension.

"I'm fuming, to be perfectly honest," he said in his own one-bedroom flat in Windsor, a historic town near London which is dominated by Queen Elizabeth's 1,000-room castle.

"I will either have to raise rents by a ridiculous amount which tenants won't be able to afford, or sell my properties," Cooper added

He owns 15 properties in northern England and around London worth £2.4 million ($3.5 million), financed by loans totalling £1.6 million.

Tenants pay him over £100,000 in rent a year and, after running costs, interest and tax, Cooper makes £12,400. 

But Osborne's cut to the amount of mortgage interest that can be offset against tax, which Cooper plans to challenge in court, will reduce that to £1,000. 

When interest rates rise, which could happen this year, profits will be even thinner.

Heirs of thatcher

Helping new buyers to enter the housing market is a stated priority of Prime Minister David Cameron, whose Conservative Party enjoyed electoral success in the 1980s under Margaret Thatcher by making it easier for renters to buy their own homes.

Home ownership rates in Britain are now the lowest in 30 years at 65 per cent, below the European Union (EU) average of 70 per cent. 

Many Britons blame property investors for making it harder for young people to buy, even if experts say a chronic lack of new home-building is really the main factor.

In a new headache for landlords like Cooper, the BoE said last month that BTL borrowers could be more vulnerable to higher interest rates than normal borrowers. It wants powers to cap the size of BTL mortgages relative to a property's price and rental income, similar to those it already has over residential mortgages.

On the other hand, the squeeze on small landlords could help

ventures like Property Partner, which launched in 2014 to offer alternatives to traditional BTL.

"BTL as a cottage industry is dead," indicated Chief Executive Dan Gandesha. The start-up enables would-be landlords to buy, sell and trade fractions of BTL properties and take advantage of tax benefits available to big investors, as well as spreading their bets across a wider range of properties.

"I don't think the returns on that are quite as good, but those are the sort of options that would make my life easier,"  said Ramzi Hajaj, 26, a technology worker whose family gave him two London investment flats in 2013 which are now each worth about £500,000.

He may invest £700,000 more, but is put off by a 3 percentage point increase in property sales tax on for buy-to-let purchases from April, in addition to other changes that will make it more onerous for landlords to get tax relief on the cost of maintenance and repairs.

Lower returns

Upfront returns on BTL property have already fallen. Property Partner estimates net rental yields in London are 2.5 per cent now, compared with nearly 8 per cent when buy-to-let got going in the late 1990s.

But returns on other assets are lower too. Ten-year British government bonds yield around 1.8 per cent now, down from 7 per cent in 1997.

Small investors are betting instead on more of the house price rises which allowed buy-to-let in England to show average annual returns of over 9 per cent for the past 20 years.

However, low rental yields are putting off major investors such as Grainger, Britain's largest specialist residential landlord. 

Speaking at an industry conference last month, one of its managing directors, Derek Gorman, said new investment in London was hard.

"It is very difficult to get into the London market at prices that are reasonable. So we are looking at the regions," he indicated.

Shortages of construction workers and rising costs, the slow speed of planning approval and the difficulty of building higher density housing in London also delayed construction.

Lack of supply means most economists predict house prices will keep rising, by 5 per cent this year and 4 per cent in 2017, according to a Reuters poll, even if some such as Morgan Stanley see BTL triggering a brief dip.

"My hunch is that demand will rise first before supply catches up," said Simon Rubinsohn, chief UK economist at RICS. "Living costs are going to get dearer."