IMF sees 4% Dubai growth in 2017

Arif Amiri, chief executive officer of the DIFC Authority, introduces the IMF special report at a launch event that drew the who's who of the financial industry.

The International Monetary Fund on Tuesday praised the UAE and Saudi Arabia for their bold reform initiatives and urged other economies of the region to speed up implementation of reforms to jumpstart job creation.
"The UAE and Saudi Arabia's strategic visions show a strong commitment toward diversifying investments and finding new revenue engines," the IMF said in its latest regional economic assessment.
"These plans would need to be complemented by policies to boost the role of the private sector and to attract more foreign investment."
Jihad Azour, IMF's Middle East and Central Asia Department director, said Dubai's gross domestic product would likely accelerate this year at a faster pace than most Arab economies, underpinned by local spending, including investment in preparation for Expo 2020, and a pick-up in global trade.
The emirate's GDP will grow as fast as four per cent from 2.7 per cent in 2016. The projected growth compares with an average of 2.3 per cent for the Middle East and North Africa, according to IMF data.
Oil exporters in the region will see their budget deficits shrink as austerity, taxes and stable oil prices begin to take effect, Azour said at the launch of IMF's Regional Economic Outlook for the Middle East and Central Asia in Dubai.
He said Gulf countries are heading in the right direction to plug budgetary gaps thanks to fiscal reforms, but more change is still necessary. "They need to continue deficit-reduction efforts, building on the progress already achieved in reducing spending."
After two years of deficits, the IMF expects the GCC to record a current account surplus in 2017 as oil prices recover and the countries press on with sensitive austerity measures, including lifting some subsidies on gas and electricity.
The IMF estimates the cumulative budget shortfall of the GCC countries through 2021 to stand at about $240 billion, compared with a forecast of about $350 billion in its 2016 outlook.
Plan by the GCC to introduce a value-added tax next year is key step to boost revenue, he said.
"Fiscal deficits of the regional oil economies are expected to fall from 10 per cent of GDP in 2016 to less than one per cent in 2022, a significant improvement which will help build resilience," Azour said.
According to the IMF, it was largely a surge in oil price from an average of $42 a barrel in 2016 to a projected $55 a barrel in 2017 that helped bring down the expected deficit of GCC countries.
For the oil exporting nations of the Middle East, North Africa, Afghanistan, and Pakistan region, the cumulative overall budget deficits for the five-year period between 2016 and 2021 are estimated at $375 billion, down from a 2016 projection of $565 billion.
However, despite the drop in deficit, oil-exporting economies need to continue diversifying away from hydrocarbons into non-oil sectors to ensure consistent and sustainable growth. The countries will also need to implement policies that support jobs and productivity, like education and infrastructure reforms, said Azour.
The fund called for additional reforms to curb government spending as oil exporting countries continue to have the world's largest energy subsidy bill despite it falling from $190 billion in 2014 to a current estimate of $86 billion a year.
"The current more favorable global environment, together with some firming of commodity prices, is providing some welcome breathing space for the region after what has been a difficult period," he said.
"However, our projections indicate that growth will be too low to create enough jobs or improve living standards. Many countries - especially oil importers - are also carrying high levels of debt." Both oil exporters and importers are therefore "facing two critical policy imperatives: fiscal consolidation and structural reforms," he stressed.
Headline growth rates for the region's oil importers are projected to increase from 3.7 per cent in 2016 to four per cent in 2017. In the region's oil exporters, non-oil growth is projected to accelerate as well from 0.4 per cent in 2016 to 2.9 per cent in 2017, although production cuts following the Opec plus agreement will temporarily reduce overall growth.
"For the region's oil-exporting countries, policy adjustments, such as reductions in public spending, will continue to constrain economic activity. Conflicts are also likely to continue to weigh on the region," the Washington based fund said.
"We know that conflicts remain a serious concern for countries in the Middle East and North Africa region; it's a concern that we share at the IMF," Azour said.
- issacjohn@khaleejtimes.com