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International Monetary Fund. Middle East and Central Asia Dept.
The COVID-19 pandemic is having far-reaching consequences for the global economy. Measures to contain the spread of the virus have led to sharp declines in economic activity across the globe, particularly in 2020Q2. The hardest hit sectors have been those requiring intensive human contact, such as tourism, transportation, services, and construction, while, in general, IT-intensive activities have fared better. The economic contraction is most significant in advanced economies. The GCC countries face a double impact from the coronavirus and lower oil prices. GCC authorities have implemented a range of appropriate measures to mitigate the economic damage, including fiscal packages, relaxation of monetary and macroprudential rules, and the injection of liquidity into the banking system, and there are recent signs of improvement. Low oil prices have caused a sharp deterioration of external and fiscal balances, and fiscal strains are evident in countries with higher debt levels.
International Monetary Fund. Middle East and Central Asia Dept.

coronavirus and lower oil prices . GCC authorities have implemented a range of appropriate measures to mitigate the economic damage, including fiscal packages, relaxation of monetary and macroprudential rules, and the injection of liquidity into the banking system, and there are recent signs of improvement. Low oil prices have caused a sharp deterioration of external and fiscal balances, and fiscal strains are evident in countries with higher debt levels. The immediate priority is to continue to meet the health and economic needs arising from the COVID-19 pandemic

Mr. Ugo Fasano-Filho and Rishi Goyal

internationally competitive wages. 13 In addition, the GCC authorities have applied quotas in a collaborative rather than in a coercive manner, since forced placement of nationals could result in lower productivity and increased costs to the employer and the economy, hindering long-run growth and, ultimately, job creation. GCC countries have also relied on administrative measures to increase the relative cost of hiring expatriates, such as regulating the supply of work permits for foreigners. Other measures include adoption of fees or a (training) tax paid by employers to hire

Mr. Qing Wang and Mr. Ugo Fasano-Filho

, the non-oil fiscal imbalance, and/or borrowing by the government. As a complement, the GCC authorities could adopt formal oil stabilization funds—as some have already done—to mitigate the pressure on government to overspend in periods of rising revenue by channeling a significant portion of the increase in oil revenue away from the budget. Additionally, GCC countries could also strengthen their budget preparation and execution process. Appendix I: Econometric Methodology Test for unit roots We consider the causality relationship with the aid of

Mr. Ugo Fasano-Filho and Ms. Andrea Schaechter

liberalize national financial markets and foster harmonization. Financial Integration With private securities markets still nascent and equity markets relatively small and underdeveloped in most GCC countries, several measures should be adopted to further foster the integration and development of these markets in the GCC area. These include the harmonization of national capital taxation, legislation (e.g., limits on foreign ownership of stocks), and accounting related to the holding and trading of securities and equities. In addition, the GCC authorities should

International Monetary Fund

pressures were addressed through a two-pronged strategy. First, with a view to insulating their economies from foreign inflation, the GCC authorities abandoned the link between their currencies and a depreciating SDR, and established a de facto peg with the U.S. dollar which led to a significant real effective appreciation of all GCC currencies ( Chart 1 ). Second, expenditures on development projects increased, and some countries actively pursued policies to promote basic industries based on their vast hydrocarbon resources. CHART 1 GCC Real Effective Exchange Rates

Mr. Ugo Fasano-Filho and Mr. Zubair Iqbal

pegged exchange rate regime in the GCC countries has contributed over the past decades to keeping inflation low, maintaining competitiveness, and strengthening confidence. Thus, the GCC authorities have also decided to peg the common currency to the U.S. dollar to provide a nominal anchor. This choice of exchange rate regime must be supported by a strong fiscal position and a sound banking system. In addition, it must be complemented by structural reforms (see below) and human capital development to boost the economies’ flexibility, particularly the labor market for

Ms. Zsofia Arvai, Mr. Ananthakrishnan Prasad, and Mr. Kentaro Katayama
As undiversified commodity exporters, GCC economies are prone to pro-cyclical systemic risk in the financial system. During periods of high hydrocarbon prices, favorable economic prospects make the financial sector keen to lend, leading to higher domestic credit growth and easier access to external financing. Fiscal policy is a very important tool for macroeconomic management, but due to the significant time lags and expenditure rigidities, it has not been a flexible enough tool to prevent credit booms and the build-up of systemic risk in the GCC. This, together with limited monetary policy independence because of the pegged exchange rate, means that macro-prudential policy has a particularly important role in limiting systemic risk in the financial system. This importance is reinforced by the underdeveloped financial markets in the region that provide limited risk management tools and shortcomings in crisis resolution frameworks. This paper will discuss the importance of macro-prudential policy in the GCC countries, look at the experience with macro-prudential policies in the boom/bust cycle in the second half of the 2000s, and use the broad frameworks being developed in the Fund and elsewhere to discuss ways existing frameworks and policy toolkits in the region can be strengthened given the characteristics of the GCC economies.
Abdulrahman K Al-Mansouri and Ms. Claudia H Dziobek
The six member states of the Gulf Cooperation Council (GCC)-Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (UAE)-have laid out a path to a common market by 2007 and monetary union by 2010, based on economic convergence. To monitor convergence and support economic and monetary policy, comparable economic data for member countries and data for the region as a whole will be essential. What is the most efficient way to produce these data? The authors survey the statistical institutions in the GCC countries and present the case for creating "Gulfstat"-a regional statistical agency to operate within a "Gulf States System of Statistics." Valuable lessons can be learned from regional statistical organization in Africa and the European Union-Afristat and Eurostat.