LONDON, 21 March 2007 — Gulf Arab states will probably not meet a 2010 deadline for currency union as member nations grapple with inflation and budget criteria, but Kuwait may revalue its currency before then, a Reuters poll shows.
Twelve of 15 analysts, surveyed March 16-20, said it was unlikely or very unlikely that the six members of the Gulf Corporation Council (GCC), representing the world’s biggest oil exporting region, would meet its single currency target in three years.
Only three said the 2010 deadline was likely to be met.
Indeed the 2010 timeframe looks more uncertain since Oman — the second smallest of the six GCC members which also include Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain — said in December it would delay entry.
“It will probably get delayed significantly, by at least a couple of years, but it won’t be scrapped as the union is a political decision,” said Mushtaq Khan at Citigroup. “They need to iron out how the convergence criteria will impact them and what they need to do about it.”
Saudi Arabia also said earlier this month that the deadline had become tight and might be pushed back.
One of the hardest economic criteria, established to help pave the way for monetary union, is that for inflation in individual GCC member nations should not exceed the Gulf average plus 2 percent.
The problem, analysts say, is that there is limited room for central banks to raise interest rates to control price pressures as currencies are pegged to the US dollar. That has fuelled inflation from imports denominated in the euro as the greenback has weakened.
“Countries in the GCC don’t have much of a monetary policy. They have to follow the US Federal Reserve and so don’t have independence to control aggregate demand or purchasing power,” said Khan.
