The Gulf now the economic center of the Middle East

The Center for Strategic and International Studies held a discussion on the “Making Sense of Gulf Economic Trends.”

The Gulf has now become the epicenter of the Middle East, anything that happens in the Gulf effects the entire region, said Mohsin Kahn, Director of the Middle East and Central Asia Department at the International Monetary Fund. He pointed out that other countries in the Middle East and the world invest heavily in the countries in the Gulf, and that these countries have 40 percent of the world’s oil reserves and a combined GDP of over $1 trillion.

Countries in the Gulf face many challenges and problems, said Khan; they are facing high inflation rates, they face dilemmas in how to manage oil revenues, they have to deal with the current financial crisis and they are trying to create a monetary union in the area.

These countries need to invest in their infrastructure in order to develop their economies, said Khan. He pointed out that since their main source of income, oil, is a limited resource, they also have to save some of their money to ensure the well-being of future generations.

A high amount of government spending on infrastructures leads to high rates of inflation, currently the average rate of inflation in the Gulf countries is around 11.5 percent, said Khan. Fluctuating oil prices also have an effect on how governments choose to spend their budgets – in 2005 oil was $50 a barrel, earlier this year it ran up to $147 a barrel, and currently it is just below $60 a barrel.

Khan concluded that improving the infrastructure should be one of the top priorities for Gulf countries, because when the world economy starts to pick up and the Middle East doesn’t have the capacity to supply enough oil, “$147 a barrel will be cheap.”