Central Bank Governor Sultan Nasser Al Suwaidi on Tuesday highlighted the role played by increased government spending in rising inflation in the UAE and its consequences if not adequately controlled.
Speaking on the sidelines of a conference in Abu Dhabi on GCC reforms, the Governor warned unchecked spending would further fuel price rises.
“I would like to see less spending and that is in the hands of the fiscal policy,” Al Suwaidi told reporters. “The fiscal policy should take steps to reduce the heating.”
Al Suwaidi also moved to dampen speculation about whether the emirates would review its currency’s peg to the US dollar a policy criticised as being the main driver for inflation in the UAE seen at above nine per cent this year.
He said recent comments from former US Fed Chairman Alan Greenspan for the Gulf Co-operation Council (GCC) countries to move away from the dollar to tackle inflation expressed only a personal opinion.
“Greenspan made a personal proposal as he is not longer the Fed chairman,” said Suwaidi.
“We in the GCC decided to peg our currencies to the US dollar following long discussions and consultations. It was then decided by our heads of state at their summit and I think any new decision to end that peg should be taken by the summit. The issue is not that easy.”
Except for Kuwait, whose dinar is linked to a basket of currencies, the currencies of the other GCC countries have been attached to the dollar since the 1980s.
Speculation has mounted over the past two years that the GCC members are planning to quit the dollar or appreciate their currencies against the US currency following a decline of more than 30 per cent in its value.
In his statements in Saudi Arabia in late February, Greenspan said the GCC nations need to move away from the dollar to tackle inflation that has climbed to record high levels over the past two years.
“Leaving the dollar is a complicated issue and is even more complicated than you can imagine,” said Suwaidi. “It is not a simple matter that let’s peg today and let’s unpeg tomorrow.
“As for economic and social effects, we are conducting studies and are aware of all the repercussions. But again, the issue is not simple.” (Input from agencies)
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Unchecked government spending will fuel price rises, says Al Suwaidi