Saudi Arabia – boosted by recent reforms such as the ease of setting up new businesses and the overhaul of the judiciary and the efficiency of its goods market – moved to 27th place, up eight rankings from 35th last year.

Similarly, the UAE aided by a more stable macroeconomic setting, use of advanced technologies, and low regulatory burden, improved by six positions to 31st spot.

Bahrain also moved up six places to 37th with financial market sophistication among its strong points.

The report ranks 134 economies worldwide based on a survey of over 12,000 business executives worldwide and 12 key determinants of competitiveness.

These include macro-economic stability; goods and labor market efficiency, innovation, business sophistication, infrastructure, education, technological readiness, and financial market sophistication.

Neighbouring Qatar spurred by advances in the functioning of its financial markets also moved up five slots to 26th this year, making it the second-ranked economy in the region behind Israel, placed 23rd, down from 17th a year earlier partly to deteriorating public trust in politicians and concerns over wasteful government spending.

However, the World Economic Forum's "Global Competitiveness Report 2008-2009" also shows other economies in the Middle East region such as Algeria, Morocco, Egypt and Kuwait, also experienced large drops in rankings.

Resource rich Algeria, the report outlines, experienced the biggest drop in the region sliding 18 position to 99th, influenced by an eroding trust in politicians, a deterioration in the institutional framework, and a worsening of the already "precarious security situation."

Likewise, North African neighbour, Morocco, fell by nine ranks, to 73rd, impacted by a "weakening security environment" and a deteriorating assessment of the country's educational system.

Egypt is also down four places this year to 81st weighed down by high government debt, double digit inflation and a rigid labor market, it said.

Bucking the upward trend of Gulf neighbours, Kuwait also dropped five slots this year to 35th position. Business executives polled listed inefficient government bureaucracy, restrictive labor regulations and corruption as the top three problematic factors in doing business, the report noted.

With regards to the performance of other countries in the region, the report noted, Oman and Tunisia moved up four positions each to 38th and 36th respectively, Jordan edged upwards one slot to 48th, Syria climbed up two rankings to 78th, and Libya dropped down three positions to 91st place.

In overall global competitiveness, and despite concerns about the soundness of its banking sector, the United States retained the top slot as the world's most competitive economy – largely due to other strengths such as its lead in innovation. It is followed by Switzerland, Denmark, Sweden and Singapore.

Among the world's largest emerging economies, China moved up four places to 30th; Russia 51st, up seven; Brazil, 64th, up eight positions; while India is placed 50th, down two from last year, the report said.