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UAE current account surplus to shrink 28pc

Oxford Economics (formerly Oxford Economic Forecasting) said in a recent report that despite higher oil revenues, current account surplus of the UAE will shrink 27.8 per cent in 2007. In 2006, the UAE recorded a current account surplus of $29 billion (17.5 per cent of GDP).

"With oil prices remaining high (the petroleum sector still accounts for some 75 per cent of UAE's total exports), export revenues are set to remain very strong and the trade surplus will fall only relatively slowly despite the fast rising level of imports," the report said.

However, the report said that despite the pick-up in non-oil revenues as the economy continues to diversify, the current account surplus is forecast to decline further in the coming years, to about 7.5 per cent of GDP in 2008 and to 3.5 per cent in 2009 (with the latter year in particular expected to be affected by a moderation in oil prices).

The forecast given by the London-based economic think-tank, however, is different from the upbeat projections made by the International Monetary Fund. In its Regional Economic Outlook, the IMF said UAE's current account balance would sustain the upturn of the past few years to reach $41.7 billion in 2007.

A country's current account includes, apart from its balance of trade, other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly.

According to the IMF, UAE's current account surplus was to grow 12-fold in four years — from $3 billion in 2002 to $37.2 billion in 2006. IMF forecast that UAE's current account surplus will constitute 21.3 per cent of the GDP that is predicted to grow 5.8 per cent to $196.2 billion in 2007.

From 2002, UAE's current account surplus has been on an upswing, reaching $7.1 billion in 2003, $10.6 billion in 2004, and almost doubling in 2005 at $19.1 billion. According to IMF data, UAE's trade surplus rose 38 per cent in 2005 to $38 billion and the current account surplus climbed to $19 billion, equal to almost 15 per cent of GDP.

However, UAE Central bank data show somewhat slower import growth than the IMF figures, with the current account surplus consequently rather higher at $26 billion.

The report by Oxford Economics said sustained high oil revenues will continue to boost investment in construction and infrastructure, and further diversification is expected as local companies expand and invest abroad. "However, some reduction is likely in the years ahead as imports continue to grow and oil prices subside (in 2009 and 2010)." It said UAE's current account will further shrink to $14.3 billion in 2008 and to $6.5 billion in 2009 and $1 billion in 2010, accounting for 7.5 per cent, 3.4 per cent and 0.5 per cent of the GDP respectively.

Recently released international statistics signal remarkable growth of the UAE economy. According to Bank for International Settlements, the UAE economy ranks as the second largest economy in the Arab region, larger than that of either Egypt or Algeria. Only the gross domestic product of Saudi Arabia outweighs that of the UAE.