by Joel Bowman on Tuesday, 04 March 2008
COMMON EXCHANGE: A collective Gulf stock exchange will likely come after the introduction of the common currency, experts said. The GCC may look to form a common stock exchange after establishing a currency union, planned for 2010, the head of the Abu Dhabi Securities Market (ADSM) said on Monday.
“You will see in this region a common capital market and securities market after the Gulf common currency,” Tom Healy, ADSM director general, told newswire Bloomberg, adding that the exchange would start “some years” after regional monetary union.
However, the common currency may not happen for some years after the official 2010 deadline, which many analysts believe is now impossible to meet.
The deadline was cast into doubt in 2006 when Oman indicated it would be unable to meet the required convergence criteria to participate, and was dealt a further blow in May last year when Kuwait depegged its dinar from the dollar blaming the falling US currency for driving up inflation.
Gulf states pegged their currencies to the dollar in preparation for the GCC monetary union and single currency.
Nasser Saidi, chief economist at the Dubai International Financial Centre (DIFC), said last month the deadline was "highly ambitious, largely because of the divergences in conditions within each of the GCC countries”.
Nevertheless, international investment interest in the GCC markets lends impetus to establishing a common, accessible marketplace.
Currently most countries in the region operate single country exchanges, such as the Doha Securities Market and the Saudi Stock Exchange (Tadawul), while the UAE operates two domestic exchanges and one international exchange.
Fahd Iqbal, Gulf equities analyst for EFG-Hermes Holding SAE, expects a Gulf market to occupy a broader sector space, resembling the pan-European exchange, Euronext NV.
“While I don't think the local bourses will disappear, I do see a possibility for a Euronext-style merger,” Iqbal said, according to Bloomberg.
“Fund managers still look at this region country by country, but in a couple of years they'll start looking at it by industry sector as they do in Europe."
Thursday, March 6, 2008
Saudi inflation plan to cost $21bn
by Talal Malik on Wednesday, 05 March 2008
SAUDI FINANCE: Jadwa Investment has said Saudi Arabia's plan to control inflation will cost the kingdom's treasury $21 billion over the next 3 years. (Getty Images)Saudi Arabia's plan to control inflation will cost the kingdom's treasury 80 billion Saudi riyals ($21 billion) over the next three years, Jadwa Investment said on Tuesday.
Riyadh-based Jadwa said in its monthly bulletin that the kingdom's Saudi Arabia's 17-point plan to alleviate the impact of rising prices will cost the government 13.5 billion riyals in supplemental spending and 67 billion riyals over the next three years, Saudi daily Arab News reported.
The cost will not affect public finances because the kingdom's budget surplus this year is expected to reach 187 billion riyals, it added.
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"The public sector pay rise is unlikely to prove too inflationary and the reduced fees and charges and other measures will not have a pronounced impact on the overall inflation rate," Brad Bourland, chief economist and head of research at Jadwa, said in reference to a recent series of salary hikes for state employees.
In announcing 5% salary rises for 2009 and 2010, the Saudi government is demonstrating clearly it expects inflation to remain around this level for the next three years, the report said.
Though the government paid about 170 billion riyals in wages last year, a 5% rise would increase the total government wage bill by 8.5 billion riyals for 2008. Further increases of 5% are pledged over the next two years, costing the kingdom 52 billion riyals by the end of 2010, the report said.
Bourland said many people believe that raising public salaries were a simple way for the government to compensate for the impact of inflation.
Citizens throughout the GCC have pushed for much higher wages and in some cases have received them - government wages were increased by up to 43% in Oman and federal employees in the UAE have received a 70% pay rise.
However, Jadwa said that pay rises should be driven by adjustments for the current rate of inflation and improvements in worker productivity, and that by raising them beyond this level will actually stimulate further inflation.
This is because much of the pay rise will be spent and this increase in demand will feed through into higher prices, it said.
The 15% government pay rise in August 2005 probably contributed to the current period of rising inflation, the report added.
Rent has been the main factor pushing up inflation in Saudi Arabia over the last year, Jadwa said.
The programme calls for the urgent approval of the Saudi mortgage law, which has been awaiting final ratification for some time. Most Saudis rent their property, so rising rents have eroded spending power, and mortgage laws are expected to help spur home buying.
"The recently announced measures will have some targeted benefits but they will not have a great impact on total inflation within the economy," Bourland said. "However, our forecast for average inflation in 2008 remains unchanged at 4.7%."
SAUDI FINANCE: Jadwa Investment has said Saudi Arabia's plan to control inflation will cost the kingdom's treasury $21 billion over the next 3 years. (Getty Images)Saudi Arabia's plan to control inflation will cost the kingdom's treasury 80 billion Saudi riyals ($21 billion) over the next three years, Jadwa Investment said on Tuesday.
Riyadh-based Jadwa said in its monthly bulletin that the kingdom's Saudi Arabia's 17-point plan to alleviate the impact of rising prices will cost the government 13.5 billion riyals in supplemental spending and 67 billion riyals over the next three years, Saudi daily Arab News reported.
The cost will not affect public finances because the kingdom's budget surplus this year is expected to reach 187 billion riyals, it added.
Story continues below ↓
advertisement
"The public sector pay rise is unlikely to prove too inflationary and the reduced fees and charges and other measures will not have a pronounced impact on the overall inflation rate," Brad Bourland, chief economist and head of research at Jadwa, said in reference to a recent series of salary hikes for state employees.
In announcing 5% salary rises for 2009 and 2010, the Saudi government is demonstrating clearly it expects inflation to remain around this level for the next three years, the report said.
Though the government paid about 170 billion riyals in wages last year, a 5% rise would increase the total government wage bill by 8.5 billion riyals for 2008. Further increases of 5% are pledged over the next two years, costing the kingdom 52 billion riyals by the end of 2010, the report said.
Bourland said many people believe that raising public salaries were a simple way for the government to compensate for the impact of inflation.
Citizens throughout the GCC have pushed for much higher wages and in some cases have received them - government wages were increased by up to 43% in Oman and federal employees in the UAE have received a 70% pay rise.
However, Jadwa said that pay rises should be driven by adjustments for the current rate of inflation and improvements in worker productivity, and that by raising them beyond this level will actually stimulate further inflation.
This is because much of the pay rise will be spent and this increase in demand will feed through into higher prices, it said.
The 15% government pay rise in August 2005 probably contributed to the current period of rising inflation, the report added.
Rent has been the main factor pushing up inflation in Saudi Arabia over the last year, Jadwa said.
The programme calls for the urgent approval of the Saudi mortgage law, which has been awaiting final ratification for some time. Most Saudis rent their property, so rising rents have eroded spending power, and mortgage laws are expected to help spur home buying.
"The recently announced measures will have some targeted benefits but they will not have a great impact on total inflation within the economy," Bourland said. "However, our forecast for average inflation in 2008 remains unchanged at 4.7%."
Sunday, March 2, 2008
Gulf currency union far off, says UAE
Gulf currency union far off, says UAE
Dubai: Mon, 25 Feb 2008
Gulf Arab oil producers are still at the start of forming a single currency and may not follow the European Union model, the United Arab Emirates central bank governor said on Monday.
The UAE, Saudi Arabia and four other oil producers have been working toward monetary union by a 2010 deadline that policymakers across the world's top oil-exporting region have said would be difficult, if not impossible, to meet.
'GCC monetary union is a long-term objective,' Sultan Nasser al-Suweidi told an investment conference in the UAE capital, Abu Dhabi.
'We are at the beginning of the road,' Suweidi said.
He did not say when he expected the six states to achieve the beleaguered common currency project, which was first thrown into doubt in 2006 when Oman said it would not join by the 2010 deadline.
Oman has decided not to join the union at all, its central bank governor told Reuters earlier this month.
Kuwait also broke ranks with its neighbours by dropping its peg to the dollar in May, saying the weak US currency was fuelling inflation because it was making some imports more expensive. The dollar pegs were intended to stay in place until monetary union.
Gulf states may move away from following the example of the European Union, which determined monetary union criteria in the Maastricht Treaty, Suweidi said.
'The GCC countries might not follow the example of the European Union and the euro,' he said, without giving details.
An inflation target of no more than 2 percent above the regional average is the most contentious of EU-style criteria agreed by the six states, which also include Qatar and Bahrain.
As part of the Maastricht Treaty, inflation in each European member state cannot be higher than 1.5 percentage points above the average annual inflation rate of the three member countries with the lowest rate.
Gulf inflation has surged as economic growth, spurred by record oil prices, strains capacity. Still, Gulf central banks are forced to match U.S. interest rate cuts to defend their dollar pegs, constraining their efforts to fight price rises.
Inflation in Bahrain, the lowest in the region, was about 4.1 percent in December, while in Qatar, contending with the fastest pace of price rises, inflation was just off a record at 13.74 percent in the fourth quarter.
Dollar pegs are helping Gulf states accomplish a monetary union objective of 'eliminating or reducing transaction costs', Suweidi said.
'(Gulf currencies) are pegged to the dollar and that has given the anchor that's needed to reduce the transaction cost of our currencies,' he said.
They still needed to work on payment systems, and harmonise laws in areas such as land ownership before they could form a common market -- a precursor to a common currency, he said. Gulf rulers agreed at a meeting in Doha in December to form a common market this year. - Reuters
Dubai: Mon, 25 Feb 2008
Gulf Arab oil producers are still at the start of forming a single currency and may not follow the European Union model, the United Arab Emirates central bank governor said on Monday.
The UAE, Saudi Arabia and four other oil producers have been working toward monetary union by a 2010 deadline that policymakers across the world's top oil-exporting region have said would be difficult, if not impossible, to meet.
'GCC monetary union is a long-term objective,' Sultan Nasser al-Suweidi told an investment conference in the UAE capital, Abu Dhabi.
'We are at the beginning of the road,' Suweidi said.
He did not say when he expected the six states to achieve the beleaguered common currency project, which was first thrown into doubt in 2006 when Oman said it would not join by the 2010 deadline.
Oman has decided not to join the union at all, its central bank governor told Reuters earlier this month.
Kuwait also broke ranks with its neighbours by dropping its peg to the dollar in May, saying the weak US currency was fuelling inflation because it was making some imports more expensive. The dollar pegs were intended to stay in place until monetary union.
Gulf states may move away from following the example of the European Union, which determined monetary union criteria in the Maastricht Treaty, Suweidi said.
'The GCC countries might not follow the example of the European Union and the euro,' he said, without giving details.
An inflation target of no more than 2 percent above the regional average is the most contentious of EU-style criteria agreed by the six states, which also include Qatar and Bahrain.
As part of the Maastricht Treaty, inflation in each European member state cannot be higher than 1.5 percentage points above the average annual inflation rate of the three member countries with the lowest rate.
Gulf inflation has surged as economic growth, spurred by record oil prices, strains capacity. Still, Gulf central banks are forced to match U.S. interest rate cuts to defend their dollar pegs, constraining their efforts to fight price rises.
Inflation in Bahrain, the lowest in the region, was about 4.1 percent in December, while in Qatar, contending with the fastest pace of price rises, inflation was just off a record at 13.74 percent in the fourth quarter.
Dollar pegs are helping Gulf states accomplish a monetary union objective of 'eliminating or reducing transaction costs', Suweidi said.
'(Gulf currencies) are pegged to the dollar and that has given the anchor that's needed to reduce the transaction cost of our currencies,' he said.
They still needed to work on payment systems, and harmonise laws in areas such as land ownership before they could form a common market -- a precursor to a common currency, he said. Gulf rulers agreed at a meeting in Doha in December to form a common market this year. - Reuters
Saturday, March 1, 2008
Ditching peg will ease inflation - Greenspan
by Souhail Karam and Stanley Carvalho on Monday, 25 February 2008
DITCH PEG: Greenspan said free-floating currencies would ease inflationFormer Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
"In the short term, free floating... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah.
But Saudi Central Bank Vice-Governor Muhammed Al Jasser and UAE Central Bank Governor Sultan Nasser Al-Suweidi both said dollar pegs have served their economies well by attracting foreign investment.
"They did very well for our economies because it has led to more capital flows," Al-Suweidi told an investment conference in Abu Dhabi on Monday.
Likewise Al Jasser, questioned by newswire Reuters about the riyal/dollar peg on Sunday, said: "It just happens to be serving our economic interests and continues to do so."
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Inflation in Saudi Arabia, the world's largest oil exporter, hit a 27-year peak of 7% in January, while in the UAE, price rises in 2006 - the latest available figure - rose to 9.3%, at least a 19-year high.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Rifts in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbours by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Qatar, contending with the region's highest inflation, is urging Gulf states to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations, its prime minister told Reuters on Saturday.
US economic recovery to take longer than usual
Alan Greenspan says longer growth stalls more likely economy will start to contract.
DITCH PEG: Greenspan said free-floating currencies would ease inflationFormer Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
"In the short term, free floating... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah.
But Saudi Central Bank Vice-Governor Muhammed Al Jasser and UAE Central Bank Governor Sultan Nasser Al-Suweidi both said dollar pegs have served their economies well by attracting foreign investment.
"They did very well for our economies because it has led to more capital flows," Al-Suweidi told an investment conference in Abu Dhabi on Monday.
Likewise Al Jasser, questioned by newswire Reuters about the riyal/dollar peg on Sunday, said: "It just happens to be serving our economic interests and continues to do so."
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Inflation in Saudi Arabia, the world's largest oil exporter, hit a 27-year peak of 7% in January, while in the UAE, price rises in 2006 - the latest available figure - rose to 9.3%, at least a 19-year high.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Rifts in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbours by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Qatar, contending with the region's highest inflation, is urging Gulf states to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations, its prime minister told Reuters on Saturday.
US economic recovery to take longer than usual
Alan Greenspan says longer growth stalls more likely economy will start to contract.
Thursday, February 28, 2008
Alan Greenspan
SAUDI ARABIA. Former Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Rifts are growing across the world's top oil-exporting region on how to tackle inflation which hit a 27-year peak of 7.0% in Saudi Arabia in January and a 19-year peak of 9.3% in the United Arab Emirates in 2006, the most recent figure.
"In the short term free floating...will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah, Saudi Arabia's second-largest city.
Saudi and UAE central bank chiefs spoke in favor on Monday of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.
"The economies of the Gulf and the United States are completely out of sync and that is exposing the shortcomings of the dollar peg," said Simon Williams, Middle East economist at HSBC Holdings in Dubai.
"Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency," he said.
Floating the Saudi Riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud al-Sayyari told Arabiya Television in response to Greenspan's suggestion.
"Floating is beneficial when the economy and exports are diverse....as for the Kingdom it remains reliant on the export of a single commodity," Sayyari said.
Dollar pegs were helping Gulf states attract foreign investments, UAE Central Bank Governor Sultan Nasser Al Suweidi added during a speech in the UAE capital, Abu Dhabi.
"They did very well for our economies because it has led to more capital flows," Suweidi said on Monday.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Qatar, contending with the region's highest inflation, is studying revaluing its Riyal among options to combat inflation that hit 13.7% in the fourth quarter, Sheikh Hamad bin Jassim bin Jabr Al Thani told Reuters late on Saturday.
The exchange rate contributes to about 40% of inflation in Qatar, where the Riyal is 30% undervalued, Hamad said.
"We prefer always to act with all the GCC countries," Sheikh Hamad, whose country currently chairs the six nation-Gulf Cooperation Council, said.
"It's now time for the Gulf to have its own currency," he said, adding the Gulf currency should be "like the Japanese yen or other currencies."
Both Qatar and the UAE are likely to sever their links to the US Dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month.
Divergence in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbors by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Inflation in the UAE last year likely rose to 10.9%, National Bank of Abu Dhabi said on Sunday
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Rifts are growing across the world's top oil-exporting region on how to tackle inflation which hit a 27-year peak of 7.0% in Saudi Arabia in January and a 19-year peak of 9.3% in the United Arab Emirates in 2006, the most recent figure.
"In the short term free floating...will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah, Saudi Arabia's second-largest city.
Saudi and UAE central bank chiefs spoke in favor on Monday of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.
"The economies of the Gulf and the United States are completely out of sync and that is exposing the shortcomings of the dollar peg," said Simon Williams, Middle East economist at HSBC Holdings in Dubai.
"Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency," he said.
Floating the Saudi Riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud al-Sayyari told Arabiya Television in response to Greenspan's suggestion.
"Floating is beneficial when the economy and exports are diverse....as for the Kingdom it remains reliant on the export of a single commodity," Sayyari said.
Dollar pegs were helping Gulf states attract foreign investments, UAE Central Bank Governor Sultan Nasser Al Suweidi added during a speech in the UAE capital, Abu Dhabi.
"They did very well for our economies because it has led to more capital flows," Suweidi said on Monday.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Qatar, contending with the region's highest inflation, is studying revaluing its Riyal among options to combat inflation that hit 13.7% in the fourth quarter, Sheikh Hamad bin Jassim bin Jabr Al Thani told Reuters late on Saturday.
The exchange rate contributes to about 40% of inflation in Qatar, where the Riyal is 30% undervalued, Hamad said.
"We prefer always to act with all the GCC countries," Sheikh Hamad, whose country currently chairs the six nation-Gulf Cooperation Council, said.
"It's now time for the Gulf to have its own currency," he said, adding the Gulf currency should be "like the Japanese yen or other currencies."
Both Qatar and the UAE are likely to sever their links to the US Dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month.
Divergence in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbors by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Inflation in the UAE last year likely rose to 10.9%, National Bank of Abu Dhabi said on Sunday
Tuesday, February 26, 2008
Qatar calls on Gulf to bridge currency rifts
Reuters Monday February 25 2008 By John Irish
DOHA, Feb 25 (Reuters) - Qatar's prime minister urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.
Qatar's dollar-pegged riyal is undervalued by as much as 30 percent and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim bin Jabr al-Thani said in an interview late on Saturday.
Inflation in the richest Arab country by per capita hit 13.74 percent in the fourth quarter.
"It's now the time for the Gulf to have its own currency," Sheikh Hamad said in the Qatari capital, Doha. "We are thinking about it and in talks ... we are discussing with Gulf countries, but there is no consensus."
Qatar, the world's largest exporter of liquefied natural gas, would prefer to make any change to its currency policy in concert with Saudi Arabia and its other Gulf Arab partners preparing for monetary union as early as 2010, Sheikh Hamad said.
"We prefer always to act with all the GCC countries," said Sheikh Hamad, whose country currently chairs the six-nation Gulf Cooperation Council that includes the United Arab Emirates and Kuwait.
Asked how long Qatar could continue with its existing foreign exchange regime, he said: "We cannot give a time. It is something that we have to see how it goes and look at where the dollar is going."
Dollar pegs force Gulf oil producers to shadow U.S. monetary policy at a time when the Federal Reserve is cutting rates to ward off recession and the Gulf economies are booming on a near five-fold jump in oil prices since 2002.
Rifts in Gulf monetary policy widened in May when Kuwait broke ranks with its neighbours by severing its dollar peg in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and United Arab Emirates Central Bank Governor Sultan Nasser al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
The GCC, created in 1981 initially as a defensive bloc against Iran, "should have a currency with a good weight internationally," Sheikh Hamad said. "The GCC now is capable to do this and have a separate currency."
The exchange rate contributes to about 40 percent of inflation in Qatar, Sheikh Hamad said.
"It's undervalued by 30 percent," he said of the riyal. "We are still studying how to deal with this matter."
Qatar will complete a study on how to address foreign exchange weakness and inflation in a "few months", Sheikh Hamad said.
(Reporting by John Irish; Editing by James Cordahi and Neil Fullick)
DOHA, Feb 25 (Reuters) - Qatar's prime minister urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.
Qatar's dollar-pegged riyal is undervalued by as much as 30 percent and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim bin Jabr al-Thani said in an interview late on Saturday.
Inflation in the richest Arab country by per capita hit 13.74 percent in the fourth quarter.
"It's now the time for the Gulf to have its own currency," Sheikh Hamad said in the Qatari capital, Doha. "We are thinking about it and in talks ... we are discussing with Gulf countries, but there is no consensus."
Qatar, the world's largest exporter of liquefied natural gas, would prefer to make any change to its currency policy in concert with Saudi Arabia and its other Gulf Arab partners preparing for monetary union as early as 2010, Sheikh Hamad said.
"We prefer always to act with all the GCC countries," said Sheikh Hamad, whose country currently chairs the six-nation Gulf Cooperation Council that includes the United Arab Emirates and Kuwait.
Asked how long Qatar could continue with its existing foreign exchange regime, he said: "We cannot give a time. It is something that we have to see how it goes and look at where the dollar is going."
Dollar pegs force Gulf oil producers to shadow U.S. monetary policy at a time when the Federal Reserve is cutting rates to ward off recession and the Gulf economies are booming on a near five-fold jump in oil prices since 2002.
Rifts in Gulf monetary policy widened in May when Kuwait broke ranks with its neighbours by severing its dollar peg in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and United Arab Emirates Central Bank Governor Sultan Nasser al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
The GCC, created in 1981 initially as a defensive bloc against Iran, "should have a currency with a good weight internationally," Sheikh Hamad said. "The GCC now is capable to do this and have a separate currency."
The exchange rate contributes to about 40 percent of inflation in Qatar, Sheikh Hamad said.
"It's undervalued by 30 percent," he said of the riyal. "We are still studying how to deal with this matter."
Qatar will complete a study on how to address foreign exchange weakness and inflation in a "few months", Sheikh Hamad said.
(Reporting by John Irish; Editing by James Cordahi and Neil Fullick)
Saturday, February 23, 2008
Saudi Arabia in the grip of surging inflation
A surge in food prices and rents have thrown Saudi Arabia into the throes of inflation after basking in relative stability for more than 20 years, prompting calls for currency revaluation and other measures. Official figures showed inflation in the world’s oil powerhouse hit a record 4.1% in 2007 mainly because of a surge in rents as well as the prices of food, beverages, fuel, water and other goods and services.
It was the highest inflation rate to hit the Kingdom since the end of the first oil boom in early 1980s, although it remains far lower than inflation levels in other neighbouring oil producers, mainly Qatar and the UAE. Saudi Arabia, which controls nearly a quarter of the world’s recoverable oil resources, had suffered from its highest inflation rate of three per cent in 1991, but it was because of a sudden surge in prices due to the Gulf war aftermath. The situation last year, which extended a steady rise in inflation over the previous couple of years, was different.
"There has been a rise in rents over the past few years because of a steady increase in prices of most building materials and a strong demand due to an upsurge in the economy and investments, which attracted more expatriates", said Ihsan bu Hulaiga, a well-known Saudi economist. "Prices of some products have also increased mainly because of higher import costs since a large part of Saudi Arabia’s imports come from non-dollar countries and the US dollar has been steadily declining against other currencies.”
Figures by the Saudi Arabian Monetary Agency [central bank] showed there was a sharp rise in rents, food and beverage prices and other products in 2007. Its cost of living index showed the prices of foodstuffs and beverages jumped seven per cent last year, while the prices of other goods and services soared by 5.3%. Rents, house renovations, fuel and water prices shot up by 8.1% and medical care by 4.9%. In contrast, the price of clothes and footwear declined by around one per cent, while home furniture, transport and telecommunications, recreation and education services remained almost unchanged.
Inflation was estimated at around 2.2% in 2006 and only 0.7% in 2005. It was almost flat in the previous three years, while it ranged between negative rate to one per cent in the previous two decades. Sama’s figures showed inflation in 2007 picked up in the second half of the year, surging by nearly 5.9% between June and December, after recording negative growth in some months in the first half.
Rising inflation rates have caused widespread concern in Saudi Arabia and other Gulf Arab states, most of which link their currencies to the weak US dollar. Such concerns have prompted calls for detaching the regional currencies or revaluing them, along with several other measures. In recent statements, the IMF said Gulf states also need to trim spending and tighten money supply within stricter fiscal policy to curb inflation. "Fiscal policy is the only effective instrument to control inflation in Gulf Co-operation Council states", said Gene Leon, deputy chief of the GCC division.
According to the Kuwait-based Inter-Arab Investment Guarantee Corporation (IAIGC), a massive influx of expatriates to the GCC states due to accelerated economic growth is another major reason for the rise in inflation. "Gulf states are witnessing another boom because of high oil prices and this has created a fresh influx of expatriates… this has put pressure on housing and other services and given rise to high prices", it said in a study. Like other Gulf states, Saudi Arabia has sharply boosted spending over the past few years following a surge in its petrodollar income that hit a record $180 billion (Dh660bn) and is projected to be even higher this year. The 2007 income is nearly five times the Kingdom’s 1998 income of only $36bn. Sama’s figures showed there has been a steady and rapid growth in the country’s money supply, which is normally associated with inflation.
Money supply M1, covering demand deposits and currency outsize banks, jumped to SR383bn (Dh380bn) at the end of 2007 from SR312bn at the end of 2006. Money supply M2, including M1 plus quasi-money, surged to SR666bn from SR538bn in the same period. Money supply M3, comprising M2 plus other quasi-monetary deposits, also swelled to a record SR789bn at the end of 2007 from SR660bn at the end of 2006
It was the highest inflation rate to hit the Kingdom since the end of the first oil boom in early 1980s, although it remains far lower than inflation levels in other neighbouring oil producers, mainly Qatar and the UAE. Saudi Arabia, which controls nearly a quarter of the world’s recoverable oil resources, had suffered from its highest inflation rate of three per cent in 1991, but it was because of a sudden surge in prices due to the Gulf war aftermath. The situation last year, which extended a steady rise in inflation over the previous couple of years, was different.
"There has been a rise in rents over the past few years because of a steady increase in prices of most building materials and a strong demand due to an upsurge in the economy and investments, which attracted more expatriates", said Ihsan bu Hulaiga, a well-known Saudi economist. "Prices of some products have also increased mainly because of higher import costs since a large part of Saudi Arabia’s imports come from non-dollar countries and the US dollar has been steadily declining against other currencies.”
Figures by the Saudi Arabian Monetary Agency [central bank] showed there was a sharp rise in rents, food and beverage prices and other products in 2007. Its cost of living index showed the prices of foodstuffs and beverages jumped seven per cent last year, while the prices of other goods and services soared by 5.3%. Rents, house renovations, fuel and water prices shot up by 8.1% and medical care by 4.9%. In contrast, the price of clothes and footwear declined by around one per cent, while home furniture, transport and telecommunications, recreation and education services remained almost unchanged.
Inflation was estimated at around 2.2% in 2006 and only 0.7% in 2005. It was almost flat in the previous three years, while it ranged between negative rate to one per cent in the previous two decades. Sama’s figures showed inflation in 2007 picked up in the second half of the year, surging by nearly 5.9% between June and December, after recording negative growth in some months in the first half.
Rising inflation rates have caused widespread concern in Saudi Arabia and other Gulf Arab states, most of which link their currencies to the weak US dollar. Such concerns have prompted calls for detaching the regional currencies or revaluing them, along with several other measures. In recent statements, the IMF said Gulf states also need to trim spending and tighten money supply within stricter fiscal policy to curb inflation. "Fiscal policy is the only effective instrument to control inflation in Gulf Co-operation Council states", said Gene Leon, deputy chief of the GCC division.
According to the Kuwait-based Inter-Arab Investment Guarantee Corporation (IAIGC), a massive influx of expatriates to the GCC states due to accelerated economic growth is another major reason for the rise in inflation. "Gulf states are witnessing another boom because of high oil prices and this has created a fresh influx of expatriates… this has put pressure on housing and other services and given rise to high prices", it said in a study. Like other Gulf states, Saudi Arabia has sharply boosted spending over the past few years following a surge in its petrodollar income that hit a record $180 billion (Dh660bn) and is projected to be even higher this year. The 2007 income is nearly five times the Kingdom’s 1998 income of only $36bn. Sama’s figures showed there has been a steady and rapid growth in the country’s money supply, which is normally associated with inflation.
Money supply M1, covering demand deposits and currency outsize banks, jumped to SR383bn (Dh380bn) at the end of 2007 from SR312bn at the end of 2006. Money supply M2, including M1 plus quasi-money, surged to SR666bn from SR538bn in the same period. Money supply M3, comprising M2 plus other quasi-monetary deposits, also swelled to a record SR789bn at the end of 2007 from SR660bn at the end of 2006
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