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Sat 6 Nov 2010 07:57 PM

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Weak dollar not a concern for Gulf economies - Kuwait

Kuwait, abandoned currency peg to dollar in 2007 to rein in soaring inflation

Weak dollar not a concern for Gulf economies - Kuwait
GULF ECONOMY: Kuwaits budget surplus rose to $19.3 bn in the first 6 months of the fiscal year ending next March (Getty Images)

The weak US dollar is not a concern for Gulf economies and Kuwait is likely to increase spending in its budget for the next 2011/12 fiscal year, the OPEC country's finance minister said on Saturday.

The dollar's slide has caused concern among oil producers as it pushes down the value of their dollar denominated oil revenues while the price of their commodity imports, such as grains, have been increasing.

However, when asked whether there was any concern about the impact of the weak dollar on Gulf Arab economies, Kuwait Finance Minister Mustapha al Shamali said: "No. Inflation levels in the GCC are not worrying," Shamali was quoted as saying by KUNA, Kuwait's official news agency.

The dollar hit an 11 month low against a basket of currencies earlier this week.

Kuwait, unlike its fellow Gulf oil producers, abandoned its currency peg to the dollar in 2007 in favour of a currency basket to rein in then soaring inflation, which is on the rise again.

A weak dollar also tends to lift oil prices as money shifts from the currency market to commodities in search of better returns.

John Sfakianakis, chief economist at Banque Saudi Fransik, said a weak dollar would have some impact on inflation across the Gulf region but did not see any change in Gulf countries' currency regimes.

Sfakianakis said: "There is plenty of evidence today that the Gulf economies as a whole will neither consider de-valuing or de-pegging from the dollar as it is neither prudent nor serves an economic purpose.

He added: "However a further weakening of the dollar will have some inflationary pass through impact."

Price pressures are highest in Saudi Arabia and Kuwait with inflation above 5 percent, whereas in the rest of the Gulf Arab region inflation is more benign.

Shamali also told reporters on the sidelines of a meeting of Gulf finance ministers and central bank governors in Kuwait that the Kuwait government's expenditure would rise in the next fiscal year's budget.

He said: "There is some increase in the budget but we are discussing it."

The world's fourth largest oil exporter ramped up spending by more than 34 percent in its current budget for 2010/11, which began in April, partly to diversify its oil reliant economy and increase the role of the private sector.

The OPEC member's 2010/11 budget forecasts a deficit of $23.4 billion or nearly 21 percent of gross domestic product, assuming oil, the key revenue earner, would fetch $43 a barrel.

Benchmark US crude ended at $86.85 a barrel on Friday.

Analysts say Kuwait is set to post the biggest surplus in the Gulf of 18.9 percent of GDP in 2010/11 because its oil price estimate is well below market prices.

Kuwait's budget surplus rose to $19.3 billion in the first 6 months of the fiscal year ending next March. (Reuters)

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