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Leaders to discuss regional challenges in Muscat summit
Leaders of the Gulf Cooperation Council (GCC) must address critical economic challenges facing the region when they meet in the Omani capital for their annual summit.
- By Dr Dr Jasim Ali, Special to Gulf News
- Published: 23:31 November 29, 2008
Leaders of the Gulf Cooperation Council (GCC) must address critical economic challenges facing the region when they meet in the Omani capital for their annual summit.
Muscat hosts the 29th GCC summit on December 29-30. Numerous adverse developments have occurred since the 28th regular summit in Doha in late 2007 and the 10th consultative in Dammam last May.
Emerging challenges relate to the global financial crisis and declining oil prices.
On the positive side, leaders will discuss the progress achieved on several projects - notably the customs union and common market.
GCC governments have come under pressure to contribute generously to a special fund designed to help countries suffering the most from the credit crunch. By one account, GCC states have amassed some $1.5 trillion (Dh5.52 trillion) in the form of sovereign wealth funds. Leaders need to take a stand on the issue of extending financial support. It makes sense for GCC states, notably the UAE, Saudi Arabia and Kuwait, to contribute to a special IMF package reportedly amounting to $250 billion.
In addition, leaders need to tackle the problem of declining oil prices. The petroleum sector plays a dominant role in public finances by virtue of comprising about 85 per cent of treasury income in all GCC countries. The average price has dropped by more than half in the last nine months, or from $140 per barrel to below $55 per barrel last week.
Bahrain has prepared its budgets for fiscal years 2009 and 2010 based on a price of $60 per barrel.
Attendants at the Muscat summit will also review the progress on programmes designed to integrate regional economies. The GCC began its customs union project at the start of 2003, but has not fully completed it due to matters related to proper distribution of customs revenues amongst member countries. Officials from the six countries have had difficulty coming up with a formula that is satisfactory to all parties and takes into account issues such as the final destination of goods.
Another stumbling block relates to limited transparency. It is alleged that some member states are not sticking to the agreed customs rates on imports, with some charging less in order to attract business.
In addition, GCC countries started implementing the Gulf Common Market (GCM) from January 2008, but there has been no progress report. The GCM is intended to be a unified market through which all member states will benefit. The project covers all economic and investment services, dealings in the stock market and setting up of companies in the public and private sectors. The GCM is intended to allow for free movement of factors of production amongst member states. The Muscat summit should provide some clues about the degree to which this goal has been realised.
Unfortunately, little if any progress has been made on the ambitious monetary union project. If everything goes according to schedule, the project should be implemented in 2010. However, Oman remains determined not to join the monetary union. Ostensibly, the sultanate is unhappy with the standards required.
Members of the union will be required to limit public debt to 60 per cent of GDP, restrict budget deficit to 3 per cent of GDP, maintain inflation below the union average rate plus 2 per cent, maintain interest rates within 2 per cent of the lowest interest rate in the union, and maintain reserves sufficient to cover imports for four months.
The writer is a Member of Parliament in Bahrain.
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