"Ultra-loose monetary conditions, which are a
direct result of the U.S. dollar pegs, have created serious distortions in
these economies, leading to the build-up of some economic excesses and signs
of overheating. Because of the pegs to the U.S. dollar, authorities were
left without a monetary policy tool. Interest rates, when discounted for
inflation, were negative."
The report said GCC countries invested poorly and could be harmed by the
global credit crisis. Standard Chartered Bank said GCC states must impose
fiscal discipline to avoid a further decline in the economy.
"This distorted economic incentives, encouraging risk-taking behavior,"
the report said. "Now that the global business and credit cycles have
turned, asset price inflation is a concern, and short-term, leveraged
investors will have to be unwound. This is likely to have an impact on the
market."
All GCC countries with the exception of Qatar have been facing
double-digit inflation. Several of the GCC states have raised the prospect
of revising their budgets amid the drop in oil prices.
"The estimated budget of 19 billion Kuwaiti dinars [$70.2 billion] will
not be affected but the new budget could be affected depending on an
increase or decrease of oil prices," Kuwaiti Finance Minister Mustapha Al
Shamali said.
