A Moody’s report, ‘Decline of the Dollar: Winners and Losers from a Rating Perspective’, said: "As with some Asian countries, the US dollar pegs lead to imported inflation and an ongoing accumulation of foreign exchange reserves and have come under considerable strain recently."
Moody’s said: "It is obvious that booming oil and gas prices, combined with US dollar pegs, impede effective macroeconomic management. That said, the macroeconomic challenges that the GCC counties currently face hinge considerably on their large expansion in government spending."
Moody’s feels a sharp dollar decline would probably force some GCC counties, "most likely the UAE and Qatar", to follow Kuwait’s example of letting their currencies appreciate against the US dollar and/or shifting to a basket of currencies against which the countries’ own currencies are pegged.
Should any loosening of the peg take place, it would be gradual process. "For most countries in this group there are compelling political reasons to maintain some kind of link to the dollar," said Moody’s.
Qatar’s Prime Minister and Foreign Minister H E Sheikh Hamad bin Jassem Al Thani recently said in an interview the Qatari riyal is undervalued by around 35 percent. Any move to revalue or drop the dollar peg would have to be taken in conjunction with other GCC states, he said.
"To sum up the case of emerging market economies with overheating phenomena – both those in the Gulf region and those in Asia -we find that as long as the US dollar decline take place in an orderly manner and the policy responses by the individual countries are appropriate, rating implications would be very marginal," said Moody’s.
