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Gulf inflation to continue as major policy challenge PDF Print E-mail
Friday, 18 April 2008

Inflation will be the biggest challenge of the UAE and its Arab neighbours, but economic growth will continue for the next two to three years, industry leaders said on Tuesday, report agencies.

Khalid Bin Zayed Al Nahyan, chairman of leading conglomerate Bin Zayed Group, said abandoning the dollar peg will not tame the rise in prices as inflation in the UAE is “internally induced.”

“De-pegging is not the answer. If you analyse the inflation here in the UAE, you will find out that more than 60 per cent or 70 per cent of that is not imported. Therefore, the problem needs to be managed internally,” Al Nahyan said during the BusinessWeek Middle-East Asia Leadership Forum in Dubai.

“Inflation is going to be the biggest challenge in the whole GCC because we are pegged to the dollar. And as the US fights recession, we don’t have the right tools for the time being,” Al Nahyan added.

The region has been under pressure to drop their pegs after the greenback continued to fall against the euro, triggering inflation across the Gulf. With the exception of Kuwait, Gulf states have not revalued their currencies.

Al Nahyan, however, said the region’s high pools of liquidity, coupled with the potential oil revenues and economic reforms introduced by GCC governments will help drive the growth in the region for the next two to three years.

“Beyond that, you need a good, steering government policy. We’re already facing challenges such as inflation and there are bottlenecks and other issues such as the shortage of talent that need to be addressed,” Al Nahyan said.

Shaikha Lubna Al Qasimi, Minister of Foreign Trade who opened the forum, said the key task confronting the leaders is how to sustain growth and ensure that any changes introduced will promote future competitiveness. “Recent market turbulence has left companies and economies across the world reeling from the impact.

Looking ahead, it is difficult to assess what the future holds, but one thing seems certain - Middle East and Asia are moving fast along the path of economic growth,” Shaikha Lubna said.

“The two regions are integrating more closely with the global economy, the rise in their domestic consumption and investments are providing a counter-balance to the global slowdown.

The shift has far-reaching implications for business as it provides fresh opportunities and new forces to sustain economic expansion,” she added.

An initiative that began in 2007, the forum drew over 400 chief executive officers from Middle East and Asia, including around 80 delegates from China-a vital trading partner for many countries in the GCC.

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