Gulf states urged to stick with stimulus scheme

Now is not the time for Gulf states to mop up the huge stimulus pumped in after the global financial crisis, but the economies of the world's largest oil-exporting region are recovering, policymakers said on Saturday.

Finance ministers and central bank governors from six Gulf Arab states – Saudi Arabia, UAE, Kuwait, Qatar, Oman and Bahrain – also urged those who have yet to ratify an agreement on monetary union to do so by year end.

The meeting in the Omani capital was meant to set the agenda for a rulers' summit in Kuwait later this year and comes as the region's economies show signs of bouncing back from the crisis, helped by rising oil prices. The head of the IMF also attended.

When asked if Gulf states should begin easing back the throttle, Saudi Arabian Monetary Authority Governor Muhammad Al Jasser told reporters: "Not yet. Not necessarily.

"The pulling out depends on the pace of the recovery in each country and the pace is not the same in all countries," he added. "So the pulling out of the stimulus has to be synchronised with the recovery pace in each country."

Jasser also said Saudi Arabia's economy was recovering.

"Our stimulus is mostly for oil production capacity enhancement and also large development projects we're implementing. When there projects are finished, then we will reassess the need for additional spending," he said.

Oman's central bank, which allocated about $2 billion to local banks to provide dollar liquidity last November, said it will keep the fund – which it said still has about $1.7bn in it – as a buffer but did not see much further demand on it.

"The global financial crisis is receding and the activities are coming back to normal soon," Oman central bank head Hamood Sangour Al Zadjali said. "Since our banks aren't dependant on foreign markets, I don't think there'll be much demand, but we are still keeping this as a buffer."

A UAE newspaper said last week that the finance ministry had delayed the final $5.45 billion tranche of a liquidity injection plan because banks did not currently need it.

IMF head Dominique Strauss-Kahn said the Gulf Cooperation Council (GCC), a loose economic bloc, is faring better than others.

"The GCC has not been immune to the crisis... but the situation is much better than elsewhere in the world," he told reporters.

"The crisis has revealed vulnerabilities in some GCC banking sectors which need to be addressed. Nevertheless, these... are of a non-systemic nature and the GCC countries have deployed the necessary resources to keep them contained," he said in a separate statement."

Delegates at the two-day meeting in a seaside hotel also agreed to call for Bahrain, Qatar and Kuwait to ratify the single currency project.

Ratification by the four remaining countries is needed for the project to go ahead, but so far only Saudi Arabia has done so, leaving question marks over the future of the project.

Only four of the GCC states are taking part in monetary union after the United Arab Emirates opted out in May, three years after Oman did the same.

"The GCC countries have asked those who have not ratified the single currency to do so by the end of the year," Darwish Ismail Al-Balushi, secretary general in the Oman finance ministry, told Reuters.

Wealthy Gulf states have also agreed in principal to extend their multi-billion dollar railway project to Yemen, their poorer neighbour on the Arabian peninsula.

Yemen – which is not in the GCC – is facing an insurgency in the north where Zaydi Shi'ite Muslims took up arms against the government in 2004, as well as frequent clashes with separatists in the south.

Gulf officials also agreed on Saturday to appoint a single authority for the rail project and approved its design.

The six countries are spending more than $100bn on various rail projects to ease congestion in the face of poor public transport networks and a growing population.

The Gulf Arab rail network alone will cost from $20-$25bn. The 1,940-kilometre railway would connect the six Gulf states, each of which would contribute a share of the start-up capital.

Policymakers are due to meet at least once more before the rulers summit.