Arab central bankers and finance ministers gathered in Kuwait yesterday to discuss ways of coping with a global financial crisis and the collapse in oil prices as they kick off a week-long economic summit.
"(The meeting) is about finding ways to stop the fallout of the crisis," Kuwait Finance Minister Mustapha Al Shamali said in an opening address to attendees of the 22-member Arab League, which includes major oil exporter Saudi Arabia.
"We are required to search appropriate tools to stop the impact on economic development in Arab countries and to realise the continuation of economic growth at an appropriate pace."
Oil prices have slumped to below $40 a barrel, virtually a quarter of the record peak above $147 they hit last July, because of a downturn in global energy demand.
This month, EFG-Hermes said the Saudi economy was likely to contract 0.9 per cent in 2009, while Standard Chartered cut its UAE growth forecast to 0.5 per cent. Egypt has set an economic growth target of 5.5 per cent for the two years starting July 2008, down from 7.2 per cent in the 2007-08 fiscal year, saying it expected exports, foreign investments and tourism to get hit by the global downturn.
"For each dollar the oil price declines, Arab oil revenues fall between $4 and $10 billion annually," Organisation of Arab Petroleum Exporting Countries (Oapec) said in a briefing report for discussion by policymakers.
Saudi Arabia, Oman and Dubai are already projecting 2009 budget deficits after recording bumper surpluses during a six-year oil-fuelled economic boom.
The global credit crisis has led to a series of project cancellations and scores of job losses, especially in Dubai, the region's financial hub.
Central banks and governments have adopted a slew of measures, from interest rate cuts to emergency funding facilities for banks and stock markets, to defrost credit markets and try to boost investor confidence.
"There is no need to worry," Saudi Central Bank Governor Hamad Saud Al Sayyari said when asked about the impact of the crisis on Saudi banks. "The results that have come out point to financial health and strength." Governors from Lebanon and Syria also said their banking sectors were sound. In fact, both pointed to continued inflows of capital into bank deposits, a signal of stability.
But with Qatar's biggest bank reporting a surprise decline in profit in the fourth quarter on Tuesday and Moody's Investors Service issuing a note to warn that UAE banks faced a negative credit outlook, confidence is shaky. Arab states would discuss setting up an emergency fund to support financial institutions, Ahmed Geweili, Secretary-General of the Arab Economic Unity Council, CNBC Arabiya said in a statement, referring to a television interview.
UN Secretary-General Ban Ki-Moon, on a regional tour aimed at clinching a ceasefire, is due to address a summit in Kuwait on Monday.
Policymakers were due to discuss ways to boost coordination in banking supervision and fiscal policies and how they could work toward stabilising oil market, Al Shamali said.