IMF: Financial support No. 1 priority in Arab Gulf
July 21,2010
DUBAI, United Arab Emirates (AP) - The International Monetary Fund on Wednesday urged Gulf Arab states to lend further support to financial firms, shut down unworkable companies and boost transparency as they emerge from the global economic crisis.
The organization's latest recommendations come as the city-state of Dubai works itself out from more than $100 billion in debt amassed by its Dubai World conglomerate and a web of other state-linked companies, whose credit woes cast a shadow on economies across the region. Firms elsewhere, including Saudi Arabia and Kuwait, are also struggling to repay billions of dollars in debt.
Financial troubles among once seemingly solid companies in the oil-rich Gulf have spooked both lenders and borrowers, making risk-averse banks reluctant to lend even as they struggle to attract new deposits, according to the IMF. That has left many relying on state support.
"The short-term priority remains the buttressing of the financial sector without unduly constraining the availability of credit," the IMF said in an update on the region released Wednesday.
It called on Gulf governments to periodically review banks' books - which it says look healthy for now - and urged authorities to spell out a framework for how and when they would intervene should problems arise.
The IMF hailed the "significant progress" made by struggling companies such as Dubai World and Kuwait's Global Investment House to restructure their finances.
Dubai World, whose name became synonymous with the Gulf's debt troubles, is expected to meet creditors this week as it seeks to win support for its $23.5 billion restructuring plan.
But the IMF also said that as authorities work to fix ailing firms, they should ensure "a smooth exit of nonviable institutions" - some of which have been propped up by the region's deep-pocketed governments.
"Countries should prepare an exit strategy from current high spending levels, to ensure long-term fiscal sustainability," the IMF said.
The fund expects Gulf economies to improve this year thanks to the global recovery and generous state spending. It forecasts regional oil output will rise by 4.8 percent, with economic growth outside the petroleum sector increasing by 4.3 percent.
As the Gulf pulls out of the downturn, it needs to boost transparency and improve corporate oversight, the IMF said. It also called on the six members the Gulf Cooperation Council - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE - to address "important gaps in quality and coverage" of financial and economic data by releasing more of it more often.