Information about Middle East Oriente Medio

Financial Systems and Reform in the Gulf Cooperation Council Countries

International Monetary Fund
Published Date:
November 1997
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Information about Middle East Oriente Medio
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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.


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The GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.


MENA countries include the members of the Arab League, the Islamic Republic of Iran, and Israel.


Since 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.


Most 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.


See International Monetary Fund (forthcoming), which also includes the Basle Committee’s “Core Principles for Effective Banking Supervision” as Annex I.

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