- Ugo Fasano-Filho, and Andrea Schaechter
- Published Date:
- August 2003
© 2003 International Monetary Fund
Production: IMF Multimedia Services Division
Figures: Martina Vortmeyer
Typesetting: Alicia Etchebarne-Bourdin
Monetary union among member countries of the Gulf Cooperation Council/by a staff team led by Ugo Fasano—Washington, D.C.: International Monetary Fund, 2003.
p. cm.—(Occasional paper, 0251-6365; 223)
Includes bibliographical references.
1. Gulf Cooperation Council. 2. Monetary union—Persian Gulf Region. 3. Persian Gulf Region—Economic integration. I. Fasano, Ugo. II. International Monetary Fund. III. Occasional paper (International Monetary Fund); no. 223
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Rina Bhattacharya and Ugo Fasano
The following symbols have been used throughout this paper:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
– between years or months (e.g., 2001–02 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years (e.g., 2001/02) to indicate a fiscal (financial) year.
“n.a.” means not applicable.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Member countries of the Cooperation Council for the Arab States of the Gulf (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—are embarking on a challenging task: the creation of a monetary union by the end of the current decade. This is a welcome decision that will consolidate their economic integration efforts initiated in the early 1980s. A monetary union will likely expand markets and help promote competitiveness and economic diversification, thus facilitating integration with the global economy. At the same time, it could contribute, together with the broad structural reforms under way, to achieving a common objective of fostering growth and diversification while maintaining macroeconomic stability. It is hoped that closer economic and monetary integration among the GCC countries could also become a catalyst for broader economic cooperation among Middle Eastern countries.
In seeking to achieve full economic integration, the GCC countries will need to address a number of challenges—principally fiscal convergence, establishment of common institutions, and strengthened data quality. The experiences of other monetary unions, particularly in the euro area, suggest that concerted steps should also be taken to ensure an orderly transition toward convergence of policies and targets. GCC countries are already proceeding with policy coordination—collectively pegging the exchange rate to the U.S. dollar and establishing a single common external tariff. However, setting fiscal convergence criteria, especially on fiscal deficits and debt levels, will be a complex task in light of the importance of oil revenue in the GCC countries’ budgets and the volatility of oil prices.
Above all, a successful monetary union also requires a strong political commitment among its member countries, as members cede a part of their sovereignty in the economic decision-making process. In addition, a centralized monetary policy within a decentralized fiscal system requires strict adherence to fiscal convergence and greater flexibility in labor and product markets. In this regard, accelerating domestic structural reforms in the individual countries could facilitate the process of integration and enhance its ultimate success. To the countries of the GCC area: you have our best wishes and our commitment to help in any way we can.
George T. Abed
Middle Eastern Department
The GCC countries decided at the end of 2001 to create a monetary union by 2010. These countries have already made important progress toward economic and financial integration since efforts started in the early 1980s, including the recent adoption of a unified common external tariff. Further progress toward efficient integration and the creation of a monetary union will likely strengthen the environment for non-oil economic growth and create employment opportunities for a rapidly growing national labor force—two important challenges facing GCC countries. However, important steps lie ahead on the way to establish a common currency. This Occasional Paper examines these steps, such as a common code of fiscal conduct, institutional requirements, and structural policies, needed for a successful monetary union among the GCC countries.
The Occasional Paper is the product of a team effort coordinated by Ugo Fasano of the Middle Eastern Department. The main authors are Ugo Fasano and Andrea Schaechter (Monetary and Financial Systems Department). Rina Bhattacharya, Ibrahim Al Gelaiqah, Behrouz Guerami, Shehadah Hussein, Bright Okogu, Van Can Thai, and John Wilson (all of the Middle Eastern Department at the time the paper was prepared) contributed to the appendixes. The authors are grateful to Zubair Iqbal for his guidance and support, and to a number of other colleagues from various departments in the IMF—in particular George T. Abed, Lorenzo Perez, David Burton, Pierre Dhonte, Paul Chabrier, Jean Le Dem, George Tsibouris, Shigeo Kashiwagi, Patricia Brenner, and Hamid Davoodi—for comments received at various stages of the paper. They would also like to thank Behrouz Guerami and Binta Terrier for excellent research assistance, and Esha Ray of the External Relations Department for editing the paper and coordinating its publication.
The opinions expressed in the paper are those of the authors and do not necessarily represent the views of the national authorities, the IMF, or IMF Executive Directors.
Abbreviations and Acronyms
Consumer price index
Banque des États de l’Afrique Centrale
Banque Centrale des États de l’Afrique de l’Ouest
Bahrain Monetary Agency
Central African Economic and Monetary Community
Common Monetary Area
Caribbean Community and Common Market
Debt Collection Program
European Central Bank
Eastern Caribbean Central Bank
Eastern Caribbean Currency Union
European Monetary System
European Economic and Monetary Union
Exchange rate mechanism
European System of Central Banks
Financial Action Task Force
Foreign direct investment
Cooperation Council for the Arab States of the Gulf
Gross domestic product
Liquefied natural gas
Organization of Petroleum Exporting Countries
Qatar monetary rate
Real effective exchange rate
Saudi Arabian Monetary Agency
West African Monetary Union
West African Economic Community
West African Economic and Monetary Union
World Trade Organization