IMF casts doubt on GCC currency union
OIL PRICE FALL TO SLOW REGIONAL GROWTH
Business News Editor
The International Monetary Fund (IMF) yesterday cast doubt on the establishment of the GCC Monetary Union by 2010 saying, “important preconditions remain to be fulfiled”.
The Gulf countries need to establish a common institutional framework in order to realise the GCC Monetary Union by 2010, the IMF, said in its latest World Economic Outlook (WEO) report obtained by Gulf News yesterday.
“While efforts to enhance policy coordination would be beneficial to the GCC countries, important preconditions remain to be fulfilled,” the report said, adding, “including the need to better define monetary policy objectives, the use of more uniform monetary instruments, the establishment of the institutional framework required to improve the coordination of monetary policies, and formation of the planned customs union.”
Following Oman’s announcement of its decision not to join the GCC monetary union at the scheduled date of 2010, it is reported that the six GCC monetary authorities are considering possible alternatives, including closer monetary policy coordination, during the transition to a full monetary union, it said.
Despite the recent high growth and rise in real per capita incomes in the region, Middle Eastern oil exporters remain heavily dependent on the hydrocarbon sector.
The current account surplus of the six Gulf countries could decline in the next two years if the current trend in oil price continues, IMF said.
The report says that the outlook for the oil-producing region as a whole remains favourable, with some moderation of growth among oil exporters.
“The region’s current account surplus is expected to decline from its 2006 level of 18 per cent of regional GDP to around 10.75 per cent of GDP over the next two years as a result of the decline in oil prices and stronger import growth,” the report said.
At the same time, rapid population growth has contributed to some of the highest levels of unemployment in the world and relatively low employment-to-population ratios.
“While increased public sector employment has helped cushion the impact of rising labour supply in a number of GCC countries in the past, the demand for jobs is outpacing economywide supply by increasing margins,” WEO report said.
“The current favourable conjuncture provides a unique opportunity for the region’s oil exporters to implement policies that can address the twin challenges of diversifying oil-dependent economies and providing employment to a rapidly expanding labour force. In this context, the ambitious investment plans of the members of the GCC (totalling over $700 billion during 2006–10) should make a major contribution.”
Dubai government has began implementing a nine-year Dubai Strategic Plan 2015 that will engineer an 11 per cent annual growth in GDP to Dh396.36 billion ($108 billion) by 2015 from the current Dh137.25 billion ($37.4 billion).
A similar plan is being finalised by the federal government.