‘Dollar peg stokes inflation’


Gulf states’ heavy investment in infrastructure development and their decision to stick to the dollar peg are the fundamental reasons behind the soaring inflation, a businessman said on Tuesday.

Inflation has accelerated across the world’s biggest oil-exporting region.

“Inflation is the biggest challenge in the Gulf because we are pegged to the dollar,” Sheikh Khaled bin Zayed Al Nahayan, Chairman of Bin Zayed Group, said at a conference in Dubai.

“As the United States fights recession, we are pegged and throwing fuel to the fire… We don’t have the right tools,” said Nahayan, who is also Chairman of Tamweel.

Almost two-thirds of Gulf executives have said the pace of inflation was having a negative impact on their businesses, an HSBC survey showed last week.

Inflation in the UAE hit 9.3 per cent in 2006 and probably accelerated to a 20-year peak of 10.9 per cent last year, according to a National Bank of Abu Dhabi estimate.

“We are feeling it,” Sheikh Khaled told Reuters of inflation’s impact on Bin Zayed’s business, which is mainly focused on the real estate and construction sectors.

“You have to increase your prices as it’s costing more now and the most important thing is the drop in low-margin businesses,” he said.

The UAE last week accepted a committee’s recommendation to keep the Gulf oil producer’s dirham pegged to the dollar at the current rate.

“De-pegging won’t be the answer to inflation,” Sheikh Khaled said, citing domestic factors, such as rents, as the main drivers.

“Inflation needs to be managed internally rather than externally,” he said.

“This region had been lagging in infrastructure investment for the past 15 years. All the wealth that had been created in the first and second oil booms hadn’t been invested internally so in the last five years we have been investing our oil revenue increase in infrastructure,” Sheikh Khaledsaid.