DUBAI/RIYADH: Oman believes Gulf Arab monetary union is unlikely to happen by 2010 and has chosen to delay entry rather than be shackled by European Union-style budget criteria to meet the deadline, Gulf officials said on Wednesday.
Oman, Saudi Arabia and four other Gulf states have agreed fiscal and macro-economic criteria for creating a single currency in the world’s biggest oil exporting region by 2010.
Muscat opted to delay entry to the union at a summit this week, throwing the project into crisis, without making public any reason for the delay.
Omani officials and a Gulf diplomat speaking to Reuters from Muscat and Riyadh on Wednesday said Oman did not believe it could make sacrifices needed to meet entry requirements in time.
"No doubt there are benefits for Oman from monetary union," said Abd al-Malik bin Abdullah al-Hanai, deputy minister of national economy. "But the question is whether it is realistic or not."
Pre-requisites to a common currency such as a customs union are running almost a year behind schedule, he said, echoing concerns Oman’s central bank governor raised last month when he first cast doubt on the deadline.
"We have still not passed the barriers which are hindering union," Hanai said. "We still have not reached a full common market and there are problems with the customs union."
With progress so slow, Oman did not think it could make the commitment needed to meet convergence criteria, especially a cap on budget deficits at 3% of gross domestic product, a Gulf diplomat said in Riyadh.
"It could not commit to the criteria of the monetary union, namely (the) limit on budget deficits," said the diplomat, who asked not to be named.
"There is not enough flexibility for it while it is leading an important restructuring of its economy involving big spending by the state."
Oman’s government is trying to diversify an economy that depends heavily on oil revenues. Oman’s oil output is dwindling unlike that of other countries in a region that supplies a fifth of the world’s energy needs.
Last year the Omani government boosted spending on a five-year plan by 50% to more than $50bn and ran a budget deficit of around 6% of GDP.
"We don’t want to give up our sovereignty unless we can be sure we are building something solid," said another Omani official, who asked not to be named.
"Maybe we need to expand our economy more and we can’t stick to the 3% of GDP target for deficits," the official said.
The criteria have caused concern elsewhere in the Gulf. The finance minister of Saudi Arabia, the largest Gulf economy, called the deadline "very ambitious" earlier this week.
Gulf finance ministers and central bank governors have yet to agree how to assess economic criteria, which in addition to the deficit cap, limit public debt to 60% of GDP and inflation to the average of the six states plus 2%.
Interest rates are to be no higher than the average of the lowest three states plus 2%, and countries must have foreign exchange reserves to cover four to six months of imports.
"The way they are rushing the whole union doesn’t make sense," said the Omani official. "Until now they haven’t agreed on how the criteria can be measured and how to monitor them."
Oman sought to delay to the project, but then decided to pull out when other countries decided to stay the course, he said. – Reuters
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