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IMF warns Gulf inflation could be a long-term problem
Rising inflation is a growing concern among all GCC countries with longer term implications for the regional economies as many of the contributing factors to the rising prices are not strictly short term in nature, according to Mohsin Khan, Regional Director of International Monetary Fund's Middle East and Central Asia Department.
- By Babu Das Augustine Banking Editor
- Published: 00:03 May 13, 2008
Dubai: Rising inflation is a growing concern among all GCC countries with longer term implications for the regional economies as many of the contributing factors to the rising prices are not strictly short term in nature, according to Mohsin Khan, Regional Director of International Monetary Fund's Middle East and Central Asia Department.
"Growing demand from large investment projects, a fast-growing population fuelled by an influx of expatriates, supply-side bottlenecks, and rising costs of imported food, raw materials and capital equipment are not purely short term issues and to that extent, the region will have to learn to adjust to higher inflation," said Khan.
For the entire GCC, the IMF estimates that inflation will average 7.1 per cent this year compared to 6.1 per cent last year. In the UAE, the inflation estimate was revised to 11 per cent last year against an earlier estimate of nine per cent.
Average
"The estimate is a weighted average of estimates of inflation in three major emirates - Abu Dhabi, Dubai and Sharjah. We were wrong last year was as we were expecting more housing unit to come to the rental market and that did not happen," Khan said.
This year, Khan said rent will continue to be an issue and food prices will be an added worry.
"That essentially means our estimate of nine per cent inflation for the UAE will be a floor level estimate which could be higher by the year-end," he said.
According to the latest regional outlook of the IMF, over the past five years, the GCC countries grew at an annual rate of about seven per cent, owing to record-high oil prices and a rapidly growing non-oil sector. In the context of the rising consumer prices and surging fiscal surpluses, Khan said introduction of value added tax (VAT) across the GCC could get further delayed.
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