GCC financial systems still have room to improve, says IMF

Financial systems in the Gulf Cooperation Council (GCC) have developed significantly over the last couple of decades, but there is further room for progress, the International Monetary Fund (IMF) said in a recent report.

The development of bank and equity markets has been supported by a combination of buoyant economic activity, a booming Islamic finance sector, and financial sector reforms.

"As a result, financial systems have deepened and, overall, the level of financial development compares well with emerging markets. However, it still lags advanced economies and, other than for Saudi Arabia, appears to be lower than would be expected given economic fundamentals, such as income levels," the report noted.

Meanwhile, GCC countries have made progress on financial inclusion, but gaps still exist such as access to finance for SMEs, women, and youth, in particular, appears relatively low.

"To realize these growth benefits, reforms to strengthen access to finance for SMEs, women, and youth are needed. Addressing institutional weaknesses and promoting financial sector competition would help boost access to finance for SMEs. Reforms to enhance financial literacy and improve SME governance structures and insolvency frameworks are critical," IMF added.

Additional reforms to foster financial development should focus on developing debt markets and making stock markets more accessible to a larger pool of companies and investors.

The authorities need to develop a government yield curve, seek to increase market liquidity through secondary market trading, and ensure requirements for private issuance are not onerous to grow domestic debt markets, the report said.

Stock market reforms should focus on enhancing corporate governance and investor protection, removing restrictions on foreign ownership, and encouraging financial market competition, the IMF noted.