Gulf powerhouse Saudi Arabia and some other Arab countries voiced cautious optimism that economies were on the mend, with the United Arab Emirates seeing an improvement in lending conditions and liquidity. Oil producers in the Gulf region have boosted spending with Saudi Arabia, the biggest Arab economy, alone committing more than $400 billion to underpin growth.
Saudi central bank governor Muhammad al-Jasser said there were no signs of contraction in the local economy. Forecasts by several banks predict a fall of around 1 percent for the G20 member this year. "There is no contraction in the local economic indicators," he said on the sidelines of a meeting of Arab central bank officials in the UAE capital, Abu Dhabi.
The UAE, the second-largest Arab economy, said lending conditions and liquidity were improving but conditions remained fragile. "The gap between loans and deposits is narrowing because liquidity is steadily improving but I think the economic situation in the UAE and other countries is fragile," central bank governor Sultan Nasser al-Suweidi told reporters.
The UAE economy might shrink or grow slightly in 2009, Suweidi said. "Growth will be small if there is any," he said, adding that banks' third- and fourth-quarter earnings could be lower due to the provisions as well as the global crisis. Banks across the Gulf region have seen earnings hit by provisions to cover their exposure to troubled Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros and central bankers have indicated more would be needed.
"We have advised banks for (first) half year results to up the provisions to 50 percent of exposures to the groups," Bahrain's central bank governor Rasheed al-Maraj told reporters. Opec producer Kuwait said no local banks or investment firms needed financial help due to the economic crisis after it had to rescue major lender Gulf Bank a year ago.
"At the moment there are no banks, no investment houses that need help according to law," Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah said. Oil exporter Libya meanwhile said its gross domestic product would be above 2 percent this year, sounding more optimistic than the International Monetary Fund (IMF) predicting in June growth to slow to 1.1 percent from 6.7 percent last year.
Sudan's economy is expected to post growth of between 5 and 6 percent this year and next, the central bank governor of Africa's biggest country said. Iraqi central bank governor Sinan al-Shibibi told Reuters he would like interest rates to be lower after the oil exporter cut its policy interest rate to 7 percent from 9 percent in June. Separately, the United Arab Emirates said it saw no compromise possible now that would allow it to rejoin plans to create a Gulf Arab monetary union.
Gulf Arab monetary union plans were thrown into disarray in May when the UAE, the second-largest Arab economy, broke ranks with Saudi Arabia, Kuwait, Qatar and Bahrain by withdrawing. "We have certain concerns with the GCC monetary union (and) we don't want to act as a stumbling block," Suweidi said.
The UAE - the second of six members of the Gulf Co-operation Council (GCC) to pull out of the monetary union after smaller Oman - linked its decision to a choice to base a joint central bank in Saudi Arabia. Oman reiterated its decision to leave plans for monetary union is final, Central Bank of Oman Executive President Hamood Sangour al-Zadjali.
High up on the agenda of the meeting of central bank officials of 22 states at the Arab Monetary Fund's annual meeting was the set up of an "early warning system" for financial institutions. But at least one central banker said it was unlikely there would be major progress made, citing Western reluctance.
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