Press Release: IMF Managing Director Rodrigo de Rato Welcomes the Large Investment Programs in the GCC Countries and Highlights the Importance of Planned Monetary Union
November 4, 2006Press Release No. No. 06/240
Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement today after a meeting in Jeddah, Saudi Arabia, with the finance ministers and central bank governors of the six-nation Gulf Cooperation Council (GCC)1:
"I appreciate the opportunity to meet with the finance ministers and central bank governors of the GCC and to join their discussion of common challenges and ways to address them. I would also like to thank H.E. Ibrahim A. Al-Assaf, Saudi Arabia's Minister of Finance, for hosting this meeting in the Kingdom.
"The global economic expansion remains strong, with IMF staff projecting global growth averaging 5 percent annually in 2006 and 2007. I welcome the GCC countries' constructive and timely decision to increase oil production significantly when global demand was growing rapidly, thus helping to sustain the ongoing global economic expansion. I fully endorse the investment plans undertaken by them to expand crude oil, gas output, and capacity. This planned added capacity will play a central role in meeting the projected global demand for energy and sustaining world economic growth over the medium term.
"Higher international oil prices and appropriate macroeconomic policies and structural reforms have strengthened significantly the economic fundamentals of the GCC countries. Economic performance in other countries in the Middle East have also been favorable, and the region in general continued to benefit from important contributions from GCC countries in the form of financial assistance, large investments, and workers' remittances. In particular, financial assistance provided by the GCC countries have helped mitigate the massive impact of the tragic conflicts in Lebanon, the Palestinian territories, and Iraq. Maintaining this generous support is essential to foster growth prospects and stability in the whole region.
"I am pleased to note that the macroeconomic impact of the recent large corrections in the stock markets in the region appears to be limited. Credit in this regard goes to the preemptive tightening of prudential regulations in the banking sector, which prevented a spillover effect. The authorities have also been prudent not to intervene directly in the market, thereby avoiding large fiscal costs and the creation of moral hazard that could increase the size and likelihood of future speculative bubbles. Additional reforms entail further strengthening the legal and regulatory framework, ensuring stricter compliance with prudential regulations, and enhancing regional supervisory coordination, would help reduce the susceptibility of the equity markets to boom and bust cycles and limit their macroeconomic impact.
"I am greatly encouraged by the authorities' resolve to seize the opportunity provided by the current favorable environment to build stronger macroeconomic foundations and at the same time boost investment in human development, physical infrastructure, and major investments aimed at sustaining the rapid growth of the non-oil sector and creating new job opportunities. These investments will also contribute importantly to the international effort to reduce global imbalances.
"I am confident that, accelerating the reform process and increasing public sector spending on programs with high social returns would further strengthen economic fundamentals in the GCC countries and enhance their absorptive and implementation capacity. The regions' economic prospects would also be further buttressed by the increased integration with the global economy and the ongoing regional integration.
"Significant progress toward regional integration has already been achieved through elimination of barriers to free movement of goods, services, capital, and national labor; and a common external tariff. All GCC countries continue to have strong macroeconomic fundamentals characterized by large surpluses in the fiscal and external current account positions, credible pegged exchange regimes, and low nominal interest rate environments. I continue to strongly support the objective of establishing a GCC monetary union by 2010. Achieving this important objective within the agreed timeframe will however require accelerating the preparatory work to put in place the necessary institutional framework and infrastructure. The Fund stands ready to assist by providing policy advice and technical assistance in our areas of its expertise."
1 The Gulf Cooperation Council is comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.