Gulf states to consider IMF call for more cash

GCC governments will consider a request to raise their contributions to the IMF, says the Central Bank Governor.

The news comes as the fund seeks to bolster its firepower to fight the euro-zone crisis.

Sultan Al Suwaidi was responding to an appeal by the IMF for funds to bolster its revenue base by up to US$600 billion (Dh2.2 trillion).

"The GCC countries normally look at things and study things and each country decides on its own decision and will take it at their own time," Mr Al Suwaidi said yesterday after talks in Abu Dhabi between GCC central bank governors and their European counterparts.

The UAE contribution represents 0.32 per cent of total member funding compared with 2.94 per cent for Saudi Arabia and 17.7 per cent for the US, the biggest contributor.

Hamood Sangour Al Zadjali, Oman's central bank governor, was quoted earlier in the day as saying the country may double its contribution. The UK, China and Australia have already said they will sink more funds into the multilateral lender.

So far the IMF has funded bailouts for Greece, Ireland and Portugal. It is also in talks with Egypt about a possible $3.2bn loan to bolster its economy. But the emergency lender's remaining $400bn bailout pot is deemed too little to rescue large debt-straddled euro-zone nations such as Italy and Spain.

Yesterday's meeting of euro-zone and GCC finance leaders was the third in a series of regular seminars held since 2008 - and the first in the region.

Mario Draghi, the president of the European Central Bank (ECB), said the meeting reflected the growing presence of GCC states in the global economy and international finance.

"I view the GCC countries as being very important partners to Europe in variety of ways," he said. "They have been partners of Europe for long time for both oil and non-oil trade."

Mr Draghi said he was "confident" the euro zone would be in better shape this year than last year because of the progress made by members in fiscal discipline and reforms.

"One has to be more optimistic than we were six or seven months ago," he said. "Very good achievements have been made by countries on the fiscal front and they are working on structural reforms.

"All these countries have shown an extraordinary determination to address this."

Under Mr Draghi's presidency, the ECB has worked hard to shore up the euro-zone's economy. It has delivered two interest rate cuts to keep rates at a record low and last month offered banks extended loans, eased borrowing rules and restarted buying government bonds.

A drop in yields on sovereign debt, as a result, has helped to avert a "serious financial crisis", Mr Draghi said.

Mr Al Suwaidi said he was optimistic a solution to the euro-zone's problems would be found.

"We are very happy and have full confidence that issues in Europe will be resolved and believe that measures taken will take some time but will resolve the issue," he said.

tarnold@thenational.ae

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Will the pound fall to parity with the dollar?

The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.

“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.

The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.

The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.

Bloomberg