Dubai set to grow faster in 2016: IMF

London - Mideast oil exporters may lose $500b in revenues

Driven by Dubai's slightly higher economic growth rate, the gross domestic product expansion of the UAE will moderate to 2.4 per cent in 2016 despite headwinds posed by lower oil revenues, the International Monetary Fund said on Monday.
The Washington-based fund said that due to the diversified nature of Dubai's economy, the emirate is poised to record 3.7 per cent growth up from 3.6 per cent last year - far exceeding the average GCC growth forecast at 1.8 per cent for 2016.
Saudi Arabia, the region's biggest economy, will see growth at just above two per cent.
"There are clear divergence in growth trends in Abu Dhabi and Dubai. We expect to see higher growth in Dubai because of the diversified nature of the emirate's economy while Abu Dhabi is projected to grow at 1.7 per cent in 2016 compared to 4.4 per cent actual growth recorded last year," said Masood Ahmed, the IMF's Middle East and Central Asia Department director.
The IMF said as low oil prices take their toll on budgets the Arabian Gulf will lose $140 billion in export revenue this year.
The growth forecast of the GCC at 1.8 per cent for 2016 is lower than the projection in October, when the fund predicted a growth of 2.8 per cent from 3.3 per cent in 2015.
Less than two weeks ago, the IMF warned that the world economy was increasingly at risk of stalling as it revised growth forecast for the UAE and rest of the world, citing unexpected weakness in the US and Japan.
While the UAE's growth was revised to 2.4 per cent this year, below the fund's January forecast of 2.6 per cent - the country's slowest growth rate since 2010 - the global growth outlook was cut to 3.2 per cent, a decline of 0.2 percentage points from January's 3.4 per cent growth forecast.
In its revised economic outlook report released, the IMF said countries in the Middle East would see revenues from oil exports drop even more in 2016 to between $490 billion and $540 billion compared to 2014, when oil prices were higher. Oil prices plunged to around $30 a barrel in January compared to $115 in mid-2014.
The oil-exporting countries of the region, which lost a collective $390 billion in export revenues in 2015, need to implement further reforms to sustain fiscal budgets and to defend the currency pegs to the US dollar, the IMF said in its report. Governments also need to make difficult decisions such as downsizing the public sector in order to tackle widening deficits, which will reach 12.3 per cent of GDP this year, and remain at seven per cent for the medium term. The fiscal deficit reached 9.9 per cent of GDP last year.
The IMF said it is encouraged by the reform initiatives of the UAE and other GCC countries in response to the sharp decline in oil revenues over the past two years.
"A number of countries have announced medium-term fiscal reform packages along with economic diversification plans. Clearly, most countries have road maps towards reforms," Ahmed said ahead of Saudi Arabia announcing plans of sweeping reforms to wean its economy away from oil dependence.
"Oil prices are likely to improve from where they are, but they're not going to go back to the figures that we saw in 2013 and 2014 for a long, long time, so this means that many of them have to cut back spending and they also have to try to raise revenue outside the oil sector," Ahmed said.
The IMF called on Gulf countries to reduce the private-public sector wage gap and entertain unpopular policies in order to deal with the low oil price era.
"An equally important priority is to ensure that the private sector can create enough jobs for a young and growing population, a process that will require deep structural reforms to improve medium-term growth prospects," said Ahmed. For example, the region spends twice as much on their public wage bills as other emerging market and developing countries, and nearly 50 per cent more on public investment as a share of GDP, the IMF said in its report.
The IMF warned that just among oil exporters in the region, 10 million young people are expected to enter the workforce by 2020, yet three million of them will find themselves without jobs at the current pace of development.
"Large fiscal adjustment will inevitably entail difficult choices, including rethinking the role and size of the public sector and modifying the social contract," the fund said.
Though Iran's growth was at zero in 2015, its economy is expected to grow four per cent in 2016 and 3.7 per cent in 2017 as it ramps up oil production and looks to increase trade and investment with the easing of international sanctions.
- issacjohn@khaleejtimes.com