Gulf Arab oil producers have to revisit their 2010 target for monetary union, Bahrains central bank governor said on Thursday, as states across the region focus on tackling the fallout from the global financial crisis. Bahrain is one of five states, along with Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, that is working towards launching a single currency by a 2010 target date set in 2001.
Economists and some policymakers have said meeting that deadline - which initially envisioned issuing notes and coins by January 1, 2010 - is virtually impossible. "We will have to revisit this timing," Rasheed al-Maraj told reporters, without elaborating. Bahrain, the smallest Gulf economy, has taken adequate measures to help shore up its banks and spur the economy as the oil-exporting region suffers from a slowdown in growth, Maraj said. "We have done enough for the time being," Maraj said on the sidelines of a conference in Dubai.
"We have done all things that we feel necessary, such as reducing interest rates and cutting reserve requirements." States across the worlds top oil-exporting region have adopted a series of measures to defrost credit markets and are pursuing expansionary fiscal policies to keep their economies moving as oil prices collapse and world trade flows decline.
In Bahrain, that has included reducing bank reserve requirements by 2 percentage points and slashing its key lending rates by 250 basis points since October. One of the hurdles to the monetary union plan is a decision on where the Gulf central bank would be located. Asked if Bahrain was still vying to host the regional central bank, Maraj said the issue required further discussion.
In December, an executive of the Gulf Cooperation Council (GCC) general secretariat said the decision would be announced by the middle of this year. The GCC is a loose economic and political alliance that also includes Oman, which said in 2006 it would not join monetary union, throwing the project into disarray.
With monetary union still far in the future, Gulf central banks have focused on carrying banks through an economic slump that brought to an end a six-year oil-fuelled boom. Crude prices have collapsed more than $100 a barrel since peaking at close to $150 last July. "This year will have slower growth than the last few years," Maraj said. "The banking sector will be able to regain its vital role in lending."
Gulf governments, which amassed a comfortable cushion of surplus revenues from oil exports in the last six years, have pledged to keep public spending high even if it means posting budget deficits this year. Maraj said Bahrain was looking at issuing bonds and treasury bills, likely including Islamic securities, to help finance possible budget deficits. "We have a programme with the Ministry of Finance to bridge deficits by issuing bonds and treasury bills," he said.
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