A new fiscal framework for GCC countries ahead of monetary union

Briefing Paper
Daniel Hanna, May 2006

In 2010, the six member countries of the Gulf Cooperation Council (GCC) are scheduled to unveil a single currency and complete their most ambitious step so far towards economic integration. The new currency will represent an area accounting for a fifth of current world oil exports and two-fifths of known oil reserves.
In economic terms, the process should be smooth. The GCC is structurally similar and exhibits a high degree of monetary and fiscal convergence. However, the emphasis of current GCC discussions has focused on entry to, rather than sustainability of, monetary union.
Given the likely change to the homogeneity of the GCC economies over the medium to long term, particularly as the hydrocarbon resources of some members are exhausted, further reforms are needed to ensure the monetary union's fiscal credibility remains intact.
This paper focuses on the fiscal implications of the GCC monetary union and suggests establishing and monitoring a new fiscal framework based on non-hydrocarbon fiscal balances.