Saudi Arabia’s central bank governor said the world’s top oil exporter continued to support a policy of pegging its currency to the dollar and voiced confidence in the U.S. handling of the crisis. "A contraction is a possibility in all (Gulf Arab) countries," UAE Central Bank Governor Sultan Nasser Al-Suweidi said, reflecting a change in tone among Gulf officials now more willing to admit that global turmoil has hit the region. "This will have a great impact on the economies of the Gulf region…," he sai
d of his oil price forecast.
The oil price collapse in recent months has hit state revenues across the Gulf. A recent rally looked to be petering out yesterday, with oil faltering towards $ 53 a barrel. Echoing growing concerns that low oil prices pose a challenge, UAE President Sheikh Khalifa bin Zayed Al-Nahayan told a Qatari newspaper that $ 70-$ 75 a barrel would be a fair price for oil.
The oil price boom enabled Gulf states to pour windfall revenues into projects designed to reduce their reliance on the volatile commodity. Oman, Bahrain and Qatar said on Tuesday they expected growth rates to halve this year. The UAE and Kuwait said this month their economies could contract in 2009. "Their forecasts are lower than they were six months ago but at the same time they are confident they are not in crisis," said John Sfakianakis, chief economist at SABB bank in Riyadh.
While they amassed surplus revenues from oil exports while prices were high, Gulf states with currency pegs to the dollar have also suffered from economic upheavals in the United States. High inflation exacerbated by a weak dollar prompted calls for the Gulf to drop pegs in 2007 and Kuwait did so, while the decline in US stock markets hit Gulf foreign investments.
We have confidence that the US is throwing all the available weapons at the problem to stabilise the financial system," said Muhammed Al-Jasser, governor of the Saudi Arabian Monetary Agency. The dollar remained the appropriate currency peg, he said. "We have not seen anything to make us worry about our … assets in dollars at this time but of course this is a crisis in motion and we always have to be prudent…
Gulf states have taken a slew of measures to defrost credit markets, cutting interest rates, guaranteeing bank deposits and offering extra liquidity to banks to stabilise their economies. Central bankers gave more assurances on Wednesday that banking sector liquidity was ample, saying that slowing economic activity and uncertainty were behind sluggish credit growth. "There is a lot of liquidity in Kuwait. The central bank of Kuwait is mopping up the surplus of the liquidity," Kuwait’s central bank governor
, Sheikh Salem Abdul-Aziz Al-Sabah, said. "There is fear from the market among banks to extend credit because of the general situation. They are still sitting and waiting… The numbers indicate there is an expansion in credit but at a low rate.
Both the Qatar and Saudi central bank chiefs said credit growth was around 15 percent in their respective countries in February compared with the same month last year. "We should not exaggerate the problem of liquidity in the Gulf," Jasser said. "There is still very healthy growth in credit.
The UAE federation has been among the hardest hit by the global financial crisis as a property boom in Dubai, one of its seven members, turns to bust. The country’s central bank had no immediate plan to cut interest rates further, Suweidi said. He added the UAE was preparing a plan to help banks bridge a gap between loans and deposits and has given banks until the end of June to raise their capital adequacy ratios to 11 percent.
