By Andy Sambidge
New report says importance of real estate sector, reliance on oil revenues are 'sources of risk'
Gulf countries remain susceptible to boom and bust cycles of credit and asset prices, according to a new report by the International Monetary Fund.
The IMF said the region's reliance on oil revenues and the importance of the real estate sector were "sources of risks".
The experience of the boom and bust in 2008-09 demonstrates the vulnerability of the member countries of the GCC to credit and asset price cycles, and makes macroprudential policies especially important, added the IMF.
Macroprudential policy is the set of tools that financial authorities and regulators use to preserve stability in the financial system as a whole.
It added that the crisis brought home the importance of expanding central banks’ traditional mandate to include financial stability as a key objective.
In January, the IMF raised its 2014 economic growth forecast for the UAE to 4.5 percent but warned of a potential property bubble if authorities were not careful.
Ananthakrishnan Prasad, one of the report's authors, said: "The heavy reliance on volatile oil revenues, the importance of real estate as a major asset class for investment, and the shortcomings in crisis resolution frameworks all underline the importance of having a deep macroprudential policy in the toolkit in the member countries of the Gulf Cooperation Council to limit systemic risk in the financial system."
He added that central banks in the region could take further steps "to build appropriate buffers and to limit credit booms in good times".
The IMF recommended the development of further effective early warning systems and the modernisation of insolvency regimes.
The report also said the region should look at introducing time varying loan-to-deposit and loan-to-value ratios to help alleviate booms in credit and asset markets and use sectoral exposure limits, particularly for real estate and personal loans, to limit the build-up of excessive exposure to targeted sectors or borrowers.
In a region where Casinos and gambling are prohibited how can people have some excitement? Wild speculation and roller coaster asset values add that "spice" to the market. IMF you are a "party pooper!" asking for proper oversight and control! Let's roll the dice and see where real estate prices take us!
Great comment. Made me smile.
Between July 2012 to till today, so many projects were launched, and without any doubt Construction boom is on its way, as soon as something kick start, Every year, Before Ramadan, IMF Comes up with New things :) Do not use the term warn. :) we have to read the whole article to understand warning, and once we read, we find nothing :)