DOHA, (Reuters) – Pressure on Gulf Arab economies through lower interest rates and a declining dollar is likely to persist this year, the revolving head of the Gulf Cooperation Council (GCC) said on Sunday.
That requires the six GCC members, which include Saudi Arabia and the United Arab Emirates, to coordinate more closely in their plan to create a single currency, Qatari Central Bank Governor Sheikh Abdullah bin Saud al-Thani said at a meeting of Gulf Arab central bank governors in the Qatari capital, Doha.
“We meet today against the backdrop of very difficult and complicated developments, in terms of their impact on our economic conditions in general, and fiscal and monetary in particular,” Sheikh Abdullah said in opening statements.
“The pressure on our economies has piled up in the last year, be it in terms of interest rates or exchange rates,” he said.
“These pressures appear to be likely to continue over the current year in a manner that requires us to deal with them with the greatest level of coordination and consultation,” he said.
This is “so that these developments do not push us away from our common aspirations and our march that lead to the achievement of monetary union,” he said.
Several GCC members are determined to meet a 2010 target to introduce single currency, the council’s secretary general said earlier on Sunday.
“There is determination from a number of countries to complete monetary union by 2010,” Abdul-Rahman al-Attiyah said at a central bank governors’ meeting in Qatar’s capital, Doha.
Qatar holds the revolving chair of the GCC, a loose economic and political bloc which also includes the United Arab Emirates, Kuwait, Bahrain and Oman.
Some Gulf countries were ready to join by 2010 and others could follow at a later stage, Attiyah said, without being more specific.
The six states in the world’s biggest oil-exporting region have been trying to negotiate a single currency by 2010, a deadline policymakers across the Gulf have said would be difficult, if not impossible, to meet as countries follow divergent strategies to try to cope with rising inflation and dollar weakness.
The states that peg their currencies to the dollar — Kuwait is the only exception — are struggling to control inflation either at or near a record.
As a result, they face pressure either to revalue their currencies or drop their pegs altogether as the pegs force them to track U.S. interest rates at a time when their economies are surging on a five-fold increase in oil prices during the last six years.
UAE inflation, for instance, hit a 19-year high of 9.3 percent in 2006 and probably accelerated to more than 10 percent last year. In Qatar, the world’s largest exporter of liquefied natural gas, it was 13.7 percent in the fourth quarter.