GCC inflation meet supports dollar peg

Scores of Gulf officials and businessmen ended a conference on inflation in Bahrain on Tuesday with a call for regional governments to keep their currencies pegged to the weakening US dollar – at least for the time being.

But the participants in the symposium, which was attended by representatives from the International Monetary Fund (IMF) and the European Union, said Gulf Co-operation Council (GCC) nations need to adopt a common strategy to tackle the festering inflation problem that has gripped the region for more than two years.

In their final statement at the end of the conference, entitled, “The Inflation Phenomenon in the GCC”, the participants issued 14 recommendations which they said should be implemented in the region to collectively tackle the problem.

One of the most discussed proposals included a call on the GCC countries to issue statistics on a regular basis on inflation as they are needed to formulate proper fiscal policies.

“In the short-term, the GCC countries should adopt an exchange rate policy that conforms to the GCC economic outlook, which in turn should be based on the continuation of the present oil price level,” said the statement, sent to Emirates Business by the GCC Secretariat.

“In the short term, GCC countries should maintain the present monetary policies, which peg the national currencies in some members to the US dollar until the current global financial downturn is over and the dollar recovers.”

GCC states – the UAE, Saudi Arabia, Kuwait, Bahrain, Qatar and Oman – have reeled under unprecedented inflation pressures over the past two years.

Officials and experts have cited several factors, including the economic boom, housing bottlenecks, the rise in global food prices and the decline in the US dollar, to which the GCC currencies, except the Kuwaiti dinar, are pegged.

In its paper at the Manama conference yesterday, the IMF expected the combined rate in the six GCC states to reach seven per cent in 2008.

The international body also estimated inflation in 2007 at as high as 14 per cent in Qatar and 11 per cent in the UAE.Saudi Arabia recorded its highest annual inflation rate of 4.1 per cent, it said.

 

“GCC states need to publish clear and accurate data on inflation on a regular basis given the significance of these figures in formulating the necessary fiscal and economic policies,” the statement said at the end of the one-day conference.