Gulf states have invited the International Monetary Fund and the European Union for an emergency meeting in Bahrain this month to discuss soaring inflation in the region and propose solutions to the issue.
The March 25 conference in Manama will be the first major gathering to bring together officials and businessmen from the six-nation Gulf Co-operation Council as well as the IMF, the EU and the United Nations since regional oil producers began to sound the inflation alarm two years ago.
The meeting comes amid a surge in inflation rates in the GCC to unprecedented levels and growing fears of becoming a protracted problem that could have serious economic and social effects.
Ministers, senior officials, businessmen and experts from the UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman will hold four joint working sessions with officials from the IMF, the EU and the UN during the conference to discuss the problem and suggest solutions, according to Gulf media.
“It will be a semi-official gathering intended to discuss the inflation problem in the region after rates increased to their highest levels, especially in the UAE,” Saudi Arabia’s Aleqtisadia newspaper said.
A statement by the Saudi-based Federation of GCC Chambers of Commerce and Industry said talks would focus on the current economic situation and its impact on inflation in the GCC, measures to contain it, the role of the common GCC market in combating inflation, the economic and social effects of this problem and exploring solutions.
“The EU delegate will present a paper on Europe’s experience in containing high prices, while the IMF representative will speak about the Fund’s policies and proposals for the GCC to tackle this problem,” it said.
“At the end of the meeting, the UNDP representative will present an important paper on the economic and social consequences of inflation in the GCC.”Gulf Arab governments have been under growing public pressure to act against inflation after a decision in some countries to enforce caps on rents and introduce higher subsidies failed to produce results.
Pressure has mounted over the past few months following a steady rise in inflation rates to a record levels in some members although many of them have sought to play it down as a normal phenomenon associated with an economic upsurge because of strong oil prices.
But there has been widespread public discontent in some GCC states and fears that an inflation problem could have damaging social impact although regional states have one of the highest per capita incomes.
A study issued by the Abu Dhabi-based Emirates Centre for Strategy Studies (ECSSR) warned such effects could also spread to the large expatriate community in the GCC, estimated at more than 13 million.
“Undoubtedly, protracted inflationary pressures and the rising cost of living would have a detrimental effect on the region because the cost of new projects would rise exponentially and that would create an environment unsuitable for foreign investment,” said the study, prepared by Fattouh Haikal.
“This could force the experienced and qualified work force in the region to leave for their native countries, or at least force them to send their families home, a matter that would have grave social consequences. In addition, it would lower the standards of living for families of workers and weaken the competitive ability of indigenously made products, as well as have other harmful impacts on Gulf economies,” said the report prepared by ECSSR.
Independent monetary policy
Morgan Stanley called on the UAE to follow the example of China in curbing inflation, the UAE-based Al Khaleej newspaper quoted the chief currency economist in Morgan Stanley as saying.
The UAE should create a monetary system that allows the economy to run an independent monetary policy that will help de-peg the dirham from the dollar and liberate it from all kinds of pegs, even from a basket of currencies. Stephen Jen said that part of the inflationary pressures exerted on the UAE were due to the rise in food prices, in addition to the oil price increase.
Interest rates are an efficient tool in the big economies such as Saudi Arabia. As for the UAE, the solution will be creating an effective exchange policy, the economist said.
IMF and EU invited to bring down inflation rate