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Dubai’s well-diversified and service-oriented economy is on course to a robust economic growth of 3.0 per cent in 2023 on the back of continued strong momentum in most key sectors as the government looks to strengthen its balance sheet with a sharp reduction in debt, analysts at a leading global rating agency said.
Providing tailwind to Dubai’s medium- and longer-term growth are the UAE-wide structural and social reforms and programmes that are underpinned by the sustained momentum in the hospitality, real estate, trade, and financial services sectors, analysts at S&P Global Ratings said in a report.
They argued that Dubai’s reputation as one of the safer, more liberal, and accessible destinations in the GCC supports population and capital inflows from other regions in times of political turmoil. Its resident population is projected to cross 4.0 million by 2026. In addition, the Russia-Ukraine war has also led to large inflows of Russian nationals and capital to the emirate.
“We also believe that the government’s announcement of the Dubai Economic Agenda D33 (D33) earlier this year is an important step toward achieving sustainable and diversified economic growth in the long run,” Juili Pargaonkar and Trevor Cullinan wrote.
Key goals include doubling the size of Dubai’s economy by the next decade along with an almost similar magnitude of growth in foreign direct investment and trade, they said.
“The authorities aim to achieve these objectives by, among other things, increasing trade with nontraditional markets, attracting the world’s best universities, supporting small and midsize enterprises, and launching a plan for green and sustainable manufacturing. These projects are expected to provide the necessary impetus to increase foreign direct investment to Dh60 billion annually from Dh32 billion currently and increase private sector investment to up to DhD1 trillion in the next decade.”
The D33 plan will run alongside the federal government’s “We The UAE 2031” plan and the “Dubai 2040 Urban Master Plan.” “In our view, even if all of the ambitious targets included in the plans are not achieved, they provide an impetus to support economic activity in Dubai over the medium term,” they said.
According to official data, Dubai received 14.4 million international overnight visitors in 2022, narrowing the gap with the 16.7 million pre-pandemic in 2019. “This robust performance continued in 2023, with 4.7 million international visitors recorded in the first quarter versus close to 4.8 million in the same period of 2019. Average hotel occupancy also stood at 81 per cent in the first quarter 2023. In addition to hospitality, residential real estate transactions increased 45 per cent by volume and 77 per cent by value to Dh528 billion in 2022,” they said in the report.
On the outlook for corporates in Dubai, S&P expects resilient performance despite mounting global economic pressures — such as high inflation and interest rates — even as global debt capital markets remain challenging. “We don’t think that the introduction of a corporate tax from June 2023 will significantly deter the establishment of new businesses. The announced 9.0 per cent tax rate will remain competitive for the region and globally, and many companies will benefit from recently announced exemptions. At the same time, free zones will continue to offer tax-free operations, while we do not expect personal income, capital gains, or dividend taxes to be introduced in the short term.”
S&P said the government’s debt stock could fall even faster if the reduction in nominal debt, which occurred in 2021 and to a more significant extent in 2022, continues over the coming years to about 51 per cent of GDP in 2023 from a cyclical high of 78 per cent in 2020, said the analysts.
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