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Mon 1 Jan 2007 12:00 AM

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Single currency suffers setback

Oman will not meet deadline for GCC monetary union

Plans for GCC monetary union appeared to hit a snag this month, after suggestions that some central banks would not be ready by the deadline.

HM Sultan Qaboos told delegates at a GCC summit that Oman would not be able to meet the requirements of monetary union by 2010, and it now looks as though the other five Gulf states will go ahead with some kind of economic union, leaving the Sultanate to join at a later date.

It also appears that the GCC countries will not create a common central bank, initially at least.

HE Sultan bin Nasser Al Suwaidi, governor of the Central Bank of the UAE, said: “The ECB, a GCC ministerial body, was too optimistic in its recommendations when it floated the idea of comprehensive monetary union, which means everything is unified. Now we see things did not work, so we will go for a simpler version of the Union.”

He added that member nations were currently working on a model of monetary union that would not require a common GCC Central Bank.

Intra-GCC trade would be increased. The Central Bank of the UAE has so far licensed three banks – Saudi American Bank (Samba), National Bank of Kuwait and Doha Bank – to operate there.

Oman told the other GCC countries that it would not be ready to comply with the conditions for membership of a single currency by 2010. A Saudi minister has also called the timetable for monetary union “ambitious”.

The six countries have agreed to adhere to five guidelines for membership. Each country must have a budget deficit of no more than 3% of GDP, public debt must be no more than 60% of GDP, and inflation must be no more than 2% above the GCC average.

Countries must have foreign exchange reserves to cover four to six months’ imports, while interest rates may not be higher than the average of the lowest three states plus 2%.

Both Qatar and UAE may have difficulty meeting these targets, since their fast rates of growth have led to relatively high rates of inflation.

The UAE and Bahrain have made bids to host the GCC Central Bank, while Qatar has requested to host the Monetary Council, which will have functions similar to a currency board.

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