Business | Opinion
How Gulf states can maintain growth and fight inflation
If left unresolved, inflationary pressures could eventually undermine growth rates and economic prosperity in the Gulf region.
- By Dr Jasim Ali, Special to Gulf News
- Published: 00:55 March 30, 2008
Last week I attended a forum organised by the Federation of GCC Chambers of Commerce in Bahrain.
Some 150 people attended the gathering, which focused on exploring fresh ideas and experiences while addressing the phenomenon of growing inflationary pressures in regional economies. This article discusses some suggestions presented during the seminar.
A decision by the IMF to revise upward inflation rates in GCC economies served as a reminder of a growing danger.
Recently, the IMF increased its average inflation rate in 2008 for GCC countries from six to seven per cent. The revision partly reflects higher than expected inflation rates registered in Qatar and the UAE in 2007.
IMF figures show that the inflation rate in Qatar in 2007 was 14 per cent rather than the 12 per cent projected earlier.
Also, the IMF put actual inflation rate in the UAE in 2007 at 11 per cent rather than eight per cent. Undoubtedly, actual inflation rates of 2007 forced the IMF to revise statistics for 2008.
Speakers at the forum presented their ideas for fighting inflationary pressures. For example, Dr Ala's Al Yousuf, chief economist at Gulf Finance House (GFH), called for looking into a number of factors such as setting a more targeted and focused fiscal policy, targeted social transfers and capital spending and allowing the private sector to do more infrastructure development. GFH is a Bahrain-based Islamic investment bank.
I find myself largely agreeing with Dr Al Yousuf in his call for having a balanced fiscal policy. The fact that all GCC budgets have ended up with surpluses over the last fiscal years suggests that it is possible to reduce revenue sources.
Recently, Saudi authorities decided to slash fees related to matters such as the renewal of passports by half until 2010. The Saudi budget recorded surpluses of $71 billion and $48 billion in 2006 and 2007, respectively.
The 2006 surplus was a record, made possible on the backdrop of firm oil prices in international markets. The move meant that the authorities made more money available at the disposable of Saudi nationals, effectively amounting to social transfers.
Private sector initiatives
Additionally, I subscribe to the notion of allowing private sector firms to engage in development of infrastructure projects including power and water plants.
Private sector firms insist on profitability, hence requiring operating at the lowest possible operating costs, in turn allowing for transferring of savings to users.
Likewise, I admired the Malaysian practice of public monitoring of prices. Dr Mohammad Iqbal of Malaysia-GCC Business Council, described the Malaysia initiative of mobilising some 14,000 people to voluntarily engage in price monitoring as part of moves designed to stem irresponsible prices imposed by vendors.
Yet, I somehow disagreed with the suggestion of GCC countries jointly importing foodstuffs and commodities in order to stem the impact of rising inflation. The problem is that the proposal is not practical, as it requires sustained coordination moves at all times. Also, the idea stands to deny firms having a competitive advantage over rivals.
Nowadays, inflation is a key challenge encountering the GCC economies. If left unresolved, inflationary pressures could eventually undermine growth rates and ongoing economic prosperity in the six-nation GCC.
It is argued that inflation, like unemployment, is the worst enemy for any economy as it affects everyone.
- The writer is a Member of Parliament in Bahrain.
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