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Delays may hit currency union

The Gulf Cooperation Council's plans for a unified monetary union in 2010 are expected to keep moving forward despite the departure of Oman and hints of delays that expose cracks.

  • By Leah Bower and Duraid Al Baik, Business Editor and Foreign Editor
  • Published: 00:00 December 11, 2006
  • Gulf News

Dubai: The Gulf Cooperation Council's plans for a unified monetary union in 2010 are expected to keep moving forward despite the departure of Oman and hints of delays that expose cracks.

For now, the remaining countries are committed to the 2010 timetable, according to Saudi Finance Minister Ebrahim Al Assaf, who spoke after the GCC summit in Riyadh yesterday. He added that even Saudi Arabia feels the deadline is ambitious.

Asked whether it meant Saudi Arabia could not meet the criteria for monetary union he replied: "It's very ambitious."

Assaf's comments are a departure from early November, when Minister of State for Financial and Industrial Affairs Mohammad Khalfan Bin Kharbash denied rumours that some countries were looking to delay the deadline.

Sources told Gulf News that Qatar has problems meeting the inflation cap set by the union agreement, while Bahrain may not be able to meet criteria regarding public debts and annual growth.

The six countries had agreed on five criteria for an economic union including capping budget deficits at three per cent of gross domestic product, public debt at 60 per cent of GDP and inflation at the GCC average plus-two per cent.

Interest rates are to be no higher than the average of the lowest three states plus two per cent, and countries must have foreign exchange reserves to cover four to six months of imports.

Abdul Rahman Bin Hamad Al Attiya, Secretary General of the GCC, told Gulf News exemptions from some criterion are under discussion by the GCC economic and monetary council. He said a deal should be reached before the next ministerial meeting in April.

Oman's departure shouldn't prove to be a breaking point for the union, according to Emilie Rutledge, a visiting professor of economics at UAE University in Al Ain.

"Oman's economy is the second smallest in the GCC ... it represents only a small part of the GCC market and it will not be a big loss," she said. "What matters now for the future [union] is whether or not the other GCC states can agree on implementing the policy prerequisites ... such as establishing a GCC central bank, finalising the customs union and the common market."

- With inputs from Reuters

Dollar: Deadline extension may hit currencies

Any extension to the 2010 timetable could put pressure on Gulf currencies, pegged to the sliding US dollar in preparation for the monetary union.

"If we are talking about 2010 being pushed back, it increases the likelihood that there could be a revaluation," said Simon Williams, an economist at HSBC in Dubai. "There are other arguments against revaluation in central bank governors' minds, but if they decide to push back 2010, then that argument falls away."

- Reuters

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