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IMF warns of inflation surge

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DUBAI — Raising its growth forecast for Middle Eastern economies on the back of higher oil price, the International Monetary Fund (IMF) yesterday warned that inflationary pressures were building.

Published: Thu 18 Oct 2007, 8:53 AM

Updated: Sat 4 Apr 2015, 11:27 PM

  • By
  • Issac John (Deputy Business Editor)

IMF also threw its support to the UAE's commitment to the dollar peg, and said: "The authorities indicated that moving the peg to basket of currencies might entail sizable financial losses, not to mention the risk of loss of credibility if the market were to expect some instability in exchange rate policy during the transition to monetary union."

In its biannual survey of global trends, the Washington-based organisation said a weakening dollar has also added to inflationary pressures in the six-nation Gulf Cooperation Council, raising the cost of imports.

In the UAE, while inflation has soared above 10 per cent, Saudi Arabia experienced a rise in inflation for the first time in a decade in 2006, with increases also reported in Egypt and Iran.

However, it noted that momentum in the region, which includes oil and non-oil exporters, would edge up to 5.9 per cent this year from 5.6 per cent in 2006, an increase of half a percentage point from an earlier projection in July.

Cautioning that with booming demand and rising import prices, inflation is accelerating, the report said growth would be sustained at 5.9 per cent next year rather than the 5.4 per cent foreseen in July.

Consumer prices on an annual basis have shot up 10.8 per cent this year, after 7.5 per cent in 2006, and are projected to rise 9.2 per cent in 2008.

The IMF said the main challenge confronting oil exporters is to develop their non-oil sectors, an initiative.

In a separate report, the IMF hinted that senior UAE officials had reservations in abandoning the dollar peg as it would lead to serious financial losses.

They also fear a loss of credibility in the event of a move to a basket of currencies and believe that a move away from the dollar would not arrest inflation, it said.

The report made its findings after consultation with the UAE Minister of Finance and Industry, Shaikh Hamdan bin Rashid Al Maktoum, and the Governor of the Central Bank, Sultan bin Nasser Al Suweidi, among other senior officials from the public and private sectors.

The IMF's panel of respondents added that a nominal revaluation of the current exchange rate would not be beneficial for the UAE economy, "given that most UAE exports and imports were denominated in US dollars and a large share of the country’s sizable official foreign assets was invested in US dollar instruments."



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