Macroprudential Policy in the GCC Countries

Author/Editor:

Zsofia Arvai ; Ananthakrishnan Prasad ; Kentaro Katayama

Publication Date:

February 1, 2014

Electronic Access:

Free Full Text (PDF file size is 1213 KB).Use the free Adobe Acrobat Reader to view this PDF file

Summary:

As undiversified commodity exporters, GCC economies are prone to pro-cyclical systemic risk in the financial system. During periods of high hydrocarbon prices, favorable economic prospects make the financial sector keen to lend, leading to higher domestic credit growth and easier access to external financing. Fiscal policy is a very important tool for macroeconomic management, but due to the significant time lags and expenditure rigidities, it has not been a flexible enough tool to prevent credit booms and the build-up of systemic risk in the GCC. This, together with limited monetary policy independence because of the pegged exchange rate, means that macro-prudential policy has a particularly important role in limiting systemic risk in the financial system. This importance is reinforced by the underdeveloped financial markets in the region that provide limited risk management tools and shortcomings in crisis resolution frameworks. This paper will discuss the importance of macro-prudential policy in the GCC countries, look at the experience with macro-prudential policies in the boom/bust cycle in the second half of the 2000s, and use the broad frameworks being developed in the Fund and elsewhere to discuss ways existing frameworks and policy toolkits in the region can be strengthened given the characteristics of the GCC economies.

Series:

Staff Discussion Notes No. 14/1

Subject:

English

Publication Date:

February 1, 2014

ISBN/ISSN:

9781484334430/2221-030X

Stock No:

SDNEA2014001

Price:

$10.00 (Academic Rate:$10.00)

Format:

Paper

Pages:

48

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