Monday 18 May 2009

GCC – positive developments

Introduction
We have highlighted the need to improve liquidity in the UAE economy, and that the high advance-to- deposit (A/D)ratios of UAE banks are one of the main reasons behind the tighter credit conditions (see OTG, 12 February 2009,‘GCC – Pro-cyclicality, recession and the way out’). Our view is that in the current challenging environment,
policy has an important role to play. Saudi Arabia has already responded with an expansionary fiscal policy and an accommodating monetary policy. In Qatar, the authorities’ attention is still focussed on reducing inflation, but this has not stopped policy makers from ensuring that the banking sector is insulated from global developments and deteriorating market conditions. Recently, there have been positive policy responses in the UAE as well. Policy makers are acknowledging the challenges and are willing to take decisive measures. This will have a significant
impact on sentiment, which is already beginning to improve, and on the economy as a whole. More needs to be done. We expect further measures to be announced in coming weeks.

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