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Leaders Set to Discuss Economic Downturn and Weak Oil Prices

MUSCAT - Gloomy global economic outlook and weak oil prices, despite significant production cuts, will be the two most pressing issues that will confront GCC leaders when they meet here on Monday for their annual summit.

The six countries, which form the GCC, have largely been successful, so far, in protecting their economies from the cascading effects of the global crisis. Yet their citizens, and especially businessmen, keenly await some reassurance in the form of a ‘ pre-emptive’ unified economic plan from the summit.

Secretary-general of the council Abdulrahman Al Attiyah earlier this month said the GCC had the means to get over the turmoil, but that, he added, did not mean they should neglect its effects. He said the member states should work together and draw up a course of action to limit any negative impact of the downturn. Meanwhile, most economists predict GCC economies to register sharp falls in their pace of growth next year.

Most developed economies, such as the United States, Japan, German, and Britain, have slipped into recession and would continue to shrink next year following the global credit crisis that wiped out their banking sectors, draining funds in capital markets and job cuts in manufacturing and services. Lack of credit and later rising unemployment has hit the demand for goods and services.

Gulf countries that saw a remarkable economic boom in the last six years, when oil prices were on the rise hitting as high as $147 a barrel in July, are now struggling to keep their financial sectors intact and economies chugging. Crude prices recently dropped to $34 per barrel, the lowest in more than four years, raising doubts about the financial stability of some GCC state. The group, with a combined GDP estimated at $1 trillion, draws up to 80 of its revenues from oil. There was little respite after a hefty 2.2-million-barrel cut in daily production announced by Opec. Oman, for instance, had to modify its 2009 budget estimates which are now based on an assumed price of $45 a barrel compared with the originally estimate of $55. Even the newly revised $45 now seems to be on the higher side, some economists say.

Key subjects, likely to be on the agenda of the Gulf rulers, include the GCC monetary union, first proposed in 2001 and whose progress has been notably slow. A GCC Ministerial Council, comprising finance and foreign ministers, met in Muscat late last month to give finishing touches to the summit agenda and finalised a draft agreement to set up a GCC central bank to replace the monetary council. The summit is expected to endorse the draft.

One of the major goals of the Gulf central bank and the ensuing single currency with a 2010 deadline is expected to be price stability—countries of the region have been under tremendous inflationary pressure in recent years, although the prices have eased a little of late. Advocates of the monetary union claim that the global economic predicament has underlined its relevance and urgency. The quest for a common currency, however, has been beset with problems. Oman pulled out of it in 2006 and has repeatedly said it has no plans to change its decision because of, what it says ‘different circumstances’ it faces. And in May 2007, Kuwait severed its dollar peg, opting instead for a basket of currencies.

Last month’s ministerial council meeting also discussed a railway project, estimated to cost over $14 billion, to link the member states and the formation of a joint company to build it.

The 1,940-kilometre railway is being mooted as a cheaper mode of transport between the member countries that will support the customs and monetary union initiatives. It is envisaged to be operational by 2016. However, it is not known whether the project will come up for discussion during the summit.

Issues likely to be discussed:

Economic:

· Establishment of GCC Monetary Authority as a precursor to the launch of single currency

· The slide in crude oil prices

· Preventative measures to minimise the impact of global economic recession

· The progress of Customs Union and Single Market initiatives

· The $14 billion regional railway

· Political and Security:

· Iran’s occupation of UAE’s Abu Musa, Greater and Lesser Tnub islands

· The Palestinian crisis

· Developments in Iraq and Lebanon

· Joint Policy on Food Security

· GCC Nuclear Energy Project

· Proposal to restrict the stay of unskilled foreign labour in the GCC to no more than 5 years

ravindranath@khaleejtimes.com