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International Monetary Fund
growth in expenditure, GCC governments have started to implement significant fiscal consolidation measures, but more needs to be done. Rapid population growth and booming oil revenues led to large increases in government spending in the GCC in the decade to 2014, which now stands high by international standards. This expenditure is dominated by compensation of employees and other current spending which are large in percent of GDP compared to Emerging Market (EM) countries and other oil exporters. This keeps overall spending above levels consistent with long-term fiscal sustainability and intergenerational equity. The international experience with large fiscal adjustments provides some key lessons for GCC countries. This experience suggests that growth outcomes improve when fiscal adjustments are sustained as part of credible multi-year fiscal plans, rely on expenditure more than revenue adjustment, and lead to improvements in expenditure composition (away from current outlays to more productive spending) and the structure of revenue (away from direct to indirect taxation). Successful fiscal adjustments also tend to be part of wider structural reforms that support growth.
International Monetary Fund

government spending than to changes in the exchange rate ( Behar and Fouejieu 2016 ). C. The Experience of Fiscal Adjustment and the Impact on Growth While fiscal adjustments are key to ensuring macroeconomic stability and supporting long term growth if government debt is on an unsustainable or undesirable trajectory, country experience shows that the negative short-term impact of fiscal consolidation on growth was lower when adjustments were gradual, focused on expenditure, and supported by strong fiscal institutions and structural reforms. The GCC experience

Ms. Ritu Basu, Mr. Ananthakrishnan Prasad, and Mr. Sergio L. Rodriguez

Front Matter Page Middle East and Central Asia Department Contents Abstract I. Introduction II. Performance of Conventional and Islamic Banks in the GCC III. Monetary Operations: Islamic Finance—Cross-Country Experiences IV. GCC Experience with Shari’ah-Compliant Monetary Instruments V. Regulatory Aspects of Liquidity Risk Management VI. Conclusion References Tables 1. GCC Countries: Conventional and Islamic Banks, Average 2008–13 2. GCC Countries: Asset Funding Composition for Conventional and Islamic Banks, 2006

Ms. Ritu Basu, Mr. Ananthakrishnan Prasad, and Mr. Sergio L. Rodriguez

financial crisis (2008–14). Section III documents cross-country experiences with monetary operations under Islamic finance. 6 Section IV discusses the GCC experience with Shari’ah compliant monetary instruments. Section V discusses the regulatory aspects of liquidity management. Section VI provides some conclusions. II. Performance of Conventional and Islamic banks in the GCC 6. Most existing studies predating the 2008–09 global financial crisis indicate that there are no significant differences between Islamic and conventional banks in terms of business

Ms. Ritu Basu, Mr. Ananthakrishnan Prasad, and Mr. Sergio L. Rodriguez
The assessment provides evidence of market segmentation across Islamic and conventional banks in the Gulf Cooperation Council (GCC), leading to excess liquidity, and an uneven playing field for Islamic banks that might affect their growth. Liquidiy management has been a long-standing concern in the global Islamic finance industry as there is a general lack of Shari’ah compliant instruments than can serve as high-quality short-term liquid assets. The degree of segmentation and bank behavior varies across countries depending on Shari’ah permissibility and the availability of Shari’ah-compliant instruments. A partial response would be to support efforts to build Islamic liquid interbank and money markets, which are crucial for monetary policy transmission through the Islamic financial system.This can be achieved, to a large extent, by deepening Islamic government securities and developing Shari’ah-compliant money market instruments.
International Monetary Fund. Middle East and Central Asia Dept.

program which imposes minimum shares for nationals that firms have to employ, to be able to access visa renewal and issuance for their expatriate workers, and other services provided by Ministry of Labor. While this paper does not evaluate the merits and design of the program, international experience indicates that a successful model for labor market policies is to “protect workers, not jobs” and to implement quotas gradually. In the GCC, experience indicates tradeoffs and a mixed record of success. Nitaqat seems to introduce more flexibility and targeting compared to

International Monetary Fund. Middle East and Central Asia Dept.

cases in Berg and Berg, 1997 , and Moginsson and Netter, 2001). Negotiated bilateral deals could allow the government to influence the divestiture to achieve its social objectives or to exclude unwanted buyers. However, constraints on the new owner can lead to a lower sale price, reducing the revenues that the government can use to finance social safety nets ( Gupta, Schiller, and Ma’, 1999 ). Evidence, including from the GCC experience, suggests that countries that have privatized through large scale IPOs have experienced rapid growth in their national stock market

Mr. Juan Sole, Mr. Gabriel Sensenbrenner, Mr. Amor Tahari, J. E. J. De Vrijer, Ms. Marina Moretti, Ms. Patricia D Brenner, and Mr. Abdelhak S Senhadji

. The GCC experience also stresses the importance of political commitment to the economic integration process. Policy consensus is crucial to avoid tensions once the single currency has been introduced and underpin the credibility and sustainability of the monetary union. The political commitment to the process has to be strong and unambiguous at the highest level in order to overcome obstacles or gridlocks on the way to monetary union. At the same time, the political commitment has to be an informed one that fully takes into account the implications of monetary

Mr. Juan Sole, Mr. Gabriel Sensenbrenner, Mr. Amor Tahari, J. E. J. De Vrijer, Ms. Marina Moretti, Ms. Patricia D Brenner, and Mr. Abdelhak S Senhadji
A healthy and dynamic financial sector is essential to achieving high and sustainable economic growth in the Maghreb region-Algeria, Libya, Mauritania, Morocco, and Tunisia. Financial integration within the Maghreb region will help deepen financial markets, increase their efficiency, and enhance the resilience of economies to shocks. It can also play a catalyst role for the global financial integration of the Maghreb region. This paper provides an overview of the financial systems, takes stock of the reform effort and highlights the challenges ahead, and examines the prospects for financial integration in the five Maghreb countries.