Kuwait may defer entry to GCC monetary union

Kuwait may opt out of the planned GCC monetary union, alongside Oman, because its currency is no longer pegged to the dollar, according to a senior economist based in the region.

The single currency plan is still on track for 2010, but there no decision has been made on the name of the common currency or where the central bank will be located, confirmed Jarmo T Kotilaine, chief economist of Bahrain-based NCB Capital Fund.

Delayed entry to the union for Kuwait was likely because it had de-pegged its currency to the dollar - to which all the GCC currencies are pegged - pegging it to a basket of currencies instead, Kotilaine told UAE daily Emirates Business.

Meanwhile, Oman had been generally been reluctant to accept a common currency, he added.

"Other GCC countries may therefore go ahead and form a union. These two countries may join later," said Kotilaine, who has published research on the planned monetary union.

Last week Mohammed Al Mazroui, assistant secretary general at the Gulf Cooperation Council Secretariat, said a technical committee would be holding a meeting in Kuwait this week to push ahead with the 2010 start plan.

However, Al Mazroui also revealed that the location of the headquarters for the proposed central bank was proving an obstacle - a view backed by Kotilaine.

"But then a union should emerge by the beginning of the next decade," he told the newspaper.

A recent study by the Middle East Economic Survey (MEES), a Cyprus-based economic publication, said while Saudi Arabia accounted for 52 percent of the GDP of the GCC, UAE made up for 22 percent.

Meanwhile, out of the total GDP of the region, Kuwait and Oman accounted for 12 percent and six percent, respectively.

"That the economies of GCC countries are increasingly divergent in nature will be a challenge for the union," Kotilaine noted.

The monetary union had become all the more relevant with the GCC states struggling to free their economies from hydrocarbon revenues, he added.

"The trade within the GCC has been increasing. And that serves as a trigger for the union."