V. Concluding Remarks
- International Monetary Fund
- Published Date:
- November 1997
The GCC countries face important challenges of improving economic efficiency; diversifying their economic base, given their excessive reliance on depletable natural resources; and more important, providing increased employment opportunities to a growing indigenous labor force. To help achieve their objectives, the GCC countries have reduced financial imbalances and are gearing their medium-term economic policies toward achieving high economic growth through liberalization, deregulation, and promotion of private sector activity. These challenges and the required policy reforms to deal with them have important implications for the GCC financial systems, which will need to adapt to the changing demands of the private sector, support the structural changes in the period ahead, and position themselves to compete in the global economy.
The GCC bank intermediaries are at an advanced stage of development, having already undergone important changes in their size, structure, managerial capabilities, and adoption of modern technology. Nonetheless, domestic money markets remain underdeveloped, stock exchanges face various constraints, and corporate bonds and secondary markets for government paper have not emerged in any significant manner. Moreover, competition remains limited, government equity participation in and control of financial institutions is relatively significant, and there are moratoria on new domestic and foreign banks.
This paper has identified a number of steps toward completing the reform of the GCC financial systems, with a particular focus on the need to strengthen market forces; promote competition and efficiency; open up the financial sector to increased foreign participation; deepen and develop capital and equity markets; enhance prudential regulations and supervision; and upgrade the standards of transparency and the provision of financial information. These reforms will need to go hand in hand with structural reforms, including privatization and deregulation, as well as sustained efforts to maintain financial stability through prudent fiscal and monetary policies. The GCC policymakers are fully aware of these challenges and of the required structural changes, some of which are at various degrees of preparation or implementation. The reform measures outlined in this paper are signposts rather than a detailed road map; the latter will have to integrate other elements of the reform agenda and take into account the political and social dimensions of economic change.