Gulf reiterates commitment to single currency

• Text size
•  
•  

MUSCAT: Gulf finance ministers and central bank governors yesterday reiterated their commitment to a monetary union and a single currency which four states plan to launch next year. The top officials from Bahrain, Kuwait, Qatar and Saudi Arabia meeting in Muscat called on the United Arab Emirates and Oman, which have previously withdrawn from the plan, to rejoin. They also discussed pending issues related to the finalisation of a trade union and the joint railway project that is due to link the six Arab countries of the Gulf.

The meeting in the Omani capital was also meant to set the agenda for a rulers' summit in Kuwait later this year and comes as the region's economies show signs of bouncing back from the crisis, helped by rising oil prices. The head of the IMF also attended.

Once the countries that are members agree, we will work on setting up the Gulf central bank and launch the project of the common currency," the Gulf Cooperation Council (GCC) said after the meeting. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE agreed at a summit in Bahrain in 2001 to set 2010 as the target to launch the monetary union and single currency.

But many experts believe the target is too ambitious and unrealistic. Bahrain, Kuwait, Qatar and Saudi Arabia signed a pact in June to create a joint monetary union council and launch the monetary union and single currency. The Emirates was irked at the choice of the Saudi capital Riyadh to host the future GCC central bank, while Oman withdrew from the monetary union saying it was not ready to meet the preconditions.

Delegates at the two-day meeting in a seaside hotel also agreed to call for Bahrain, Qatar and Kuwait to ratify the single currency project. Ratification by the remaining countries is needed for the project to go ahead, but so far only Saudi Arabia has done so, leaving question marks over the future of the project. "The GCC countries have asked those who have not ratified the single currency to do so by the end of the year," Darwish Ismail Al-Balushi, secretary general in the Oman finance ministry, told Reuters.

IMF chief Dominique Strauss-Kahn said Gulf Arab countries need to diversify their economies and financial sectors. Gulf countries were not immune from the consequences of the financial crisis but have tackled it from "a position of strength," the International Monetary Fund managing director told Gulf states ministers at the meeting.

The authorities should be commended for cushioning the impact of the crisis through strong countercyclical fiscal policy, which helped sustain growth in their own economies and had positive spillovers for neighbouring countries as well as contributing to global demand during the downturn," he said. But Strauus-Kahn added: "There is a need to continue to diversify the financial sector, and more broadly the economy. Doing so would reduce both volatility in economic activity and financing costs for private investment, which is key to providing jobs for a growing labour force." He said the IMF has been closely cooperating with Gulf countries and is ready to support their efforts toward economic integration and monetary union.

Policymakers also said now is not the time for Gulf states to mop up the huge stimulus pumped in after the global financial crisis, but the economies of the world's largest oil-exporting region are recovering. When asked if Gulf states should begin easing back the throttle, Saudi Arabian Monetary Authority Governor Muhammad Al Jasser told reporters: "Not yet. Not necessarily". "The pulling out depends on the pace of the recovery in each country and the pace is not the same in all countries," he added. "So the pulling out of the stimulus has to be synchronised with the recovery pace in each country.

Jasser also said Saudi Arabia's economy was recovering. "Our stimulus is mostly for oil production capacity enhancement and also large development projects we're implementing. When the projects are finished, then we will reassess the need for additional spending," he said.

Oman's central bankOman's central bank, which allocated about $2 billion to local banks to provide dollar liquidity last November, said it will keep the fund - which it said still has about $1.7 billion in it - as a buffer but did not see much further demand on it. "The global financial crisis is receding and the activities are coming back to normal soon," Oman central bankOman central bank head Hamood Sangour al-Zadjali said. "Since our banks aren't dependant on foreign markets, I don't think there'll be much demand, but we are still keeping this as a buffer." A UAE newspaper said last week that the finance ministry had delayed the final $5.45 billion tranche of a liquidity injection plan because banks did not currently need it.

© Kuwait Times 2009