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Thu 22 Jul 2010 02:16 AM

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'Gulf must focus on financial industries' - IMF

IMF predicts that strong fiscal spending will help accelerate growth in the GCC.

'Gulf must focus on financial industries' - IMF
STRENGTHEN REGULATION: The IMF has warned Gulf Arab states to strengthen regulation of their financial industries. (Getty Images)

Gulf Arab states need to strengthen regulation of their financial industries without tightening credit conditions and damping economic growth, the International Monetary Fund said.

In a report released on Wednesday, IMF said: “This requires a continued forward-looking approach to monitoring bank capital adequacy through periodic reviews of bank asset quality and regular stress testing."

Companies across the six member Gulf Cooperation Council struggled during the financial crisis as banks curtailed lending and debt markets dried up, leading to defaults and restructurings.

Two Saudi businesses, Saad Group and Ahmad Hamad Algosaibi & Brothers Co, owe banks at least $15.7 billion, according to documents provided by lenders, after defaulting on loans last year.

Growth in the GCC, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, will accelerate this year, supported by strong fiscal spending and the global recovery, the IMF said. The region’s non oil economy will expand by 4.3 percent this year, the fund said.

Non performing loans are expected to rise more slowly this year than in 2009, according to the fund. Kuwait had the highest percentage of non performing loans, at 9.7 percent, while Qatar had the lowest at 1.7 percent, according to IMF data.

Policy makers must create a framework to guide future intervention in the banking industry, the IMF said. Countries should also find ways to reduce spending without hurting growth, the fund said.

Most Gulf countries slashed interest rates while some embarked on fiscal stimulus measures to boost their economies.

Saudi Arabia, the Arab world’s largest economy, announced a $400 billion spending program in 2008, the largest in the Group of 20 nations as a percentage of gross domestic product.

Four of the six GCC states are working toward a single currency to harmonize their economies and allow for a more independent monetary policy.

The euro crisis has led policy makers to evaluate the process of monetary union, though this won’t necessarily translate into a delay, according to the IMF.

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