Pursuant to the objectives of the Gulf Monetary Council (GMCO) which provide for following up fulfillment of the Member States' obligations to the Monetary Union and the introduction of single currency specifically those related to the performance of the economic convergence criteria, GMCO is presenting an overview and a periodic review of the economic convergence criteria during 2015 which had been completed and approved by the Joint Technical Committee in May 2007. The criteria aim to ensure the convergence of economic performance among the Member States and to simulate economies of each other in their fiscal and monetary conduct. The criteria cover inflation rates, interest rates, imports coverage ratio, ratios of annual deficit in government budget, public debt ratios, and cross exchange rates.
The Supreme Council at the 22nd session in Muscat, December 2001, approved the timetable for establishing the Monetary Union and issuing a unified currency and decided to adopt the US Dollar as a common anchor for GCC currencies. Later on, at its 26th Session (Abu Dhabi- December 2005), the Supreme Council approved the initial criteria of economic performance related to fiscal and monetary stability. Furthermore, the Joint Technical Committee completed the formulation of criteria of economic performance in May 2007, and approved the rates of these criteria which to be achieved, its components, the method of calculation and how to reach them under the authorization of the Supreme Council at the 27th Session (Riyadh- December 2006) . The Criteria are represented in the following:
Criteria of Economic Performance in the Gulf Monetary Union |
Inflation rate* ||
Inflation rate should not exceed the weighted average (by GDP) of the inflation rates in GCC countries plus two percentage points (2%).|
The interest rate should not exceed the average of lowest three short-term interest rates (for three months) in the GCC states plus two percentage points (2%).|
Imports coverage ratio **||
The foreign reserves of the monetary authority in each country should be sufficient to cover cost of its goods imports for a period of no less than 4 months.|
Fiscal deficit ratio***||
The annual fiscal deficit should not exceed 3% of nominal GDP (As long as the average price of OPEC Oil basket is $25 or more).|
Public Debt ratio ***||
The ratio of Public debt for the General Government should not exceed 60% of the nominal GDP, and that of the Central Government should not exceed 70% of the nominal GDP. |
The US dollar is set as a common anchor for GCC's currencies.|
*The Inflation rate criterion is calculated by using consumer prices Indices (CPI), and methodology of calculation is unified.
** Defines the foreign reserves of the monetary authority according to IMF's Balance of Payments Manual (fifth edition).
*** Defines the public sector and the concept of deficit according to IMF's Government Finance Statistics Manual (2001).
Among the primary pillars of the Monetary Union is the perquisite that the member states should satisfy a high grade of fiscal and monetary convergence. In this context, we shed light on the extent to which the Member States satisfy the requirements of economic convergence and assessing these criteria in particular. The following table summarizes the most important changes have taken place on economic performance criteria for the Member States during 2015:
Summary of Convergence among the Member States of the Monetary Union during 2015 |
Convergence criterion (%)||
Criterion condition ||
Inflation rate (%)||
Interest rate (months of imports)||
Imports coverage ratio (% of GDP)||
Fiscal deficit ratio (% of GDP)||
≥ - 3.00||
Central Government debt ratio (% of GDP)||
General Government debt ratio (% of GDP)||
Cross exchange rate (anchor currency)||
Source: National Central Banks.