Economic growth in the six-nation Gulf Arab region is strengthening but a major risk to the outlook is that oil prices remain low for a protracted period, the International Monetary Fund said on Wednesday.

In an updated report on Gulf Cooperation Council (GCC) member states the IMF urged countries to prepare exit strategies from the current high spending levels but not to implement them until economic conditions were right.

The IMF revised up its growth forecast for non-oil growth for GCC states to 4.3 per cent, higher than the 4 per cent it forecast in May.

US crude oil futures rose for third straight day on Wednesday as economic optimism reflected in stronger equity markets helped boost oil prices. On New York Mercantile Exchange, September crude rose to $78.43 a barrel by 8.40am EDT (1240 GMT).

The IMF said challenges in the financial sector in GCC states may restrain growth in the short-term but those problems remain manageable and should not undermine long-term prospects.

It said banks' capital adequacy ratios 'remain strong and there are strong indications on profitability'.

IMF staff analysis of listed non-financial corporates shows that at the end of 2009 GCC corporates had adequate capacity to service their debt obligations, the report said.

The report said regional spillovers from the Dubai debt crisis were minimal although noted there was persistent uncertainty about Dubai.
   
Still, the IMF urged the Dubai authorities to complete the planned debt restructuring of debt-laden conglomerate Dubai World and to determine the full breath of potential problems in other government-related entities.

Dubai World has invited creditors to a meeting on Thursday to offer details on its multi-billion dollar debt restructuring, the first session to include all lender since December 2009.

'The impact from financial developments in Dubai and Greece should continue to have limited effect on the GCC countries, and substantial foreign assets are available to mitigate the impact of new shocks,' the IMF added.

It said Greece's debt crisis had heightened uncertainty over the strength of the global economic recovery, which had caused oil prices to fall and increased volatility on equity markets.-Reuters