Information about Middle East Oriente Medio

Financial Systems and Reform in the Gulf Cooperation Council Countries

International Monetary Fund
Published Date:
November 1997
  • ShareShare
Information about Middle East Oriente Medio
Show Summary Details
Abdelali Jbili, Vicente Galbis and Amer Bisat 

Executive Summary

• Since the end of the regional crisis in 1990-91, the Gulf Cooperation Council (GCC)1 financial systems have witnessed a rapid development and integration with international financial markets, under the effects of profound changes in the economies of the region that stemmed from the impact of the Gulf war and the economic reforms that have been initiated thereafter.

• In the aftermath of the war, bank intermediaries increased their deposit and capital base, improved productivity by acquiring new technology, and enhanced their profits by developing consumer-based services. In addition, the monetary authorities in all GCC countries moved to strengthen prudential regulations and bank supervision.

• However, competition has remained relatively limited, with restrictions applying to bank licensing and foreign participation; domestic capital markets lack depth and diversification; and, in a number of cases, equity investment and financing continue to face supply constraints and restrictions concerning listing and trading.

• Looking forward, the GCC financial systems will also need to respond to a number of challenges emanating from fiscal retrenchment and the strengthening of the role of the private sector, including the need to mobilize private financing for large investment projects in telecommunications, power, transportation, and the petrochemical industry. In addition, financial intermediaries will need to meet an increased demand of more sophisticated financial services by a young and wealthy population.

• The GCC countries have already completed most of the crucial stages of liberalization and financial reform, and unlike many other countries of the Middle East and North Africa (MENA),2 their financial systems are not encumbered with distortions. Key reforms, however, should aim at strengthening market forces, opening up the financial sector to foreign competition, strengthening bank soundness by enhancing the regulatory and supervisory framework, and developing the capital markets.


    AbdelnourZiad1995International Private-Equity Investing in the Middle East,Middle East Policy (April) pp. 8894.

    Al-JumaliH.1986The Kuwait Stock Market Crisis (Kuwait).

    Al-SabahSalemAbdulAziz and others1995Gulf Banking in the Nineties,Middle East Policy (April) pp. 95127.

    AzzamHenry1996The Emerging Arab Capital Markets (London: Kegan Paul International).

    AzzamHenry1989Managing the External Arab Debt,Arab Banker No. 9 pp. 1219.

    AzzamHenry1983Souk Al-Manakh Stock Market Crises in Kuwait (United Gulf BankSeptember).

    ChalkN.A.JbiliV.Treichel and J.Wilson1996Financial Structure and Reforms,Building on Progress: Reform and Growth in the Middle East and North Africa (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    El-ErianMohamed and ManmohanKumar1995Emerging Equity Markets in Middle Eastern Countries,Staff PapersInternational Monetary Fund Vol. 42 (June) pp. 31343.

    • Search Google Scholar
    • Export Citation

    El-NaggarSaid1994Financial Policies and Capital Markets in Arab Countries,January (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    ErricoL.forthcomingIslamic Banking: Issues in Supervision,IMF Working Paper Series (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    Financial Times Survey1994Arab Banking” (December15).

    GalbisVicente1995Financial Sector Reforms in Eight Countries: Issues and Results,IMF Working Paper 95/141 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    GalliAnton and AzizAlkazaz1988The Arab Banking Sector,Economics (Germany) No. 37 pp. 99123.

    IMFforthcomingToward a Framework for Financial Stability (Washington).

    KhanMohsin and AbbasMirakhor1989Islamic Banking: Experiences in the Islamic Republic of Iran and Pakistan,IMF Working Paper 89/12 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    MarberPeter1995Sheikhs and Souks: Capital Market Formation in the Middle East,Journal of International Affairs Vol. 49 pp. 76101.

    • Search Google Scholar
    • Export Citation

    Middle East Economic Digest (various issues).

    Middle East Economic Digest-Money (various issues).

    SassanpourCyrus1996Policy Challenges in the Gulf Cooperation Council Countries” (Washington: International Monetary Fund).

    SeznecJean-Francois1995The Gulf Capital Markets at a Crossroads,Columbia Journal of World Business Vol. 30 (Fall) pp. 614.

    • Search Google Scholar
    • Export Citation

    SeznecJean-Francois1988The Financial Markets of the Arabian Gulf (London: Croom Helm).

    • Export Citation
1The GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
2MENA countries include the members of the Arab League, the Islamic Republic of Iran, and Israel.
3Since credit to public enterprises is usually aggregated with credit to the private sector, it is more accurate to refer to credit to the nongovernment sector.
4Most GCC countries’ currencies are de facto or de jure pegged to the U.S. dollar, except the Kuwaiti dinar, which is pegged to a basket of currencies.
5See International Monetary Fund (forthcoming), which also includes the Basle Committee’s “Core Principles for Effective Banking Supervision” as Annex I.

Other Resources Citing This Publication