UAE Economy may Grow 3.3pc: IMF

DUBAI - The UAE economy may grow but at a slower pace of 3.3 per cent this year due to a weak global economy and lower oil revenues, before recovering to an average of around five per cent during 2010–13, said the International Monetary Fund, or IMF, in a report released on Tuesday.



By Issac John

Published: Thu 16 Apr 2009, 12:36 AM

Last updated: Thu 2 Apr 2015, 3:36 AM

The IMF’s forecast for UAE’s gross domestic product, or GDP, was down from last year’s 7.4 per cent. The Washington-based multi-lateral lender said inflation was forecast to slow to 6.7 percent, from an estimate of 12.7 per cent rate last year.

The forecast — less gloomier than most economic analysts had in recent weeks — was based on the final discussions its executive board had with the UAE officials on January 9, 2009. The discussions were part of the annual Article IV consultation.

The most bearish of recent forecast was from investment bank EFG-Hermes which had expected the UAE economy to contract by 1.7 per cent this year.

Dr Nasser Al Saidi, Chief Economist of the Dubai International Financial Centre, or DIFC, said IMF’s growth forecast was in line with the projection of between 2.5 and 3.5 per cent GDP growth made by the DIFC.

“The positive views expressed by IMF on UAE’s fiscal, monetary and financial policy responses are encouraging. IMF’s views on the soundness of the UAE banking sector, Central Bank’s new regulatory measures are particularly significant at a time when rest of the world is reeling under the impact of an economic meltdown,” Al Saidi said.

Noting that UAE’s outlook for 2009 and beyond had “become more clouded,” the IMF said it was “evident in a widening of sovereign risk spreads and a sharp downturn in stock markets—most pronounced for real estate companies.”

The report noted that global weakening would reduce demand for tourism, trade, and financial services in the UAE, while lower oil prices may affect public spending. “Growth in the non-oil economy is expected to slow down considerably, while inflationary pressures should recede.”

The IMF pointed out that the UAE banking system appeared “adequately capitalised and highly profitable, but risks of a future deterioration of asset quality have risen.”

Banks’ capital adequacy ratio stood at 13.3 per cent by mid-2008, above the regulatory minimum of 10 per cent, though somewhat below the level of 2007, it said. “However, the fast pace of growth of consumer and real estate loans along with the uncertain outlook for asset prices has raised the risk of a future increase in nonperforming loans.”

The IMF said migration into the UAE was also expected to ease with slower growth. Oil production is expected to expand gradually to about 3.39 million barrels per day by 2013, with oil prices gradually recovering to around $86 per barrel.

“Inflation is expected to decelerate to about three per cent by 2013 as demand pressures and international commodity price inflation ease. Fiscal and external balances are projected to remain in surplus over the medium-term, despite lower oil prices,” the report said.

UAE’s non-oil fiscal deficit is expected to narrow to 29 per cent of non-oil GDP over the medium-term, while the current account surplus would reach 15 per cent of GDP by 2013.

“It would take a fall in oil prices to below $53 per barrel before the current account would show a deficit in 2009,” the report said.

The IMF welcomed UAE’s plans to amend the banking law to strengthen the Central Bank’s supervisory and regulatory power and to launch a thorough review of banks’ balance sheets, off-balance sheet items, and large exposures. It urged the authorities to improve the classification of loans in order to better assess risks, and to strengthen surveillance over bank and finance company risk management practices.

The IMF also supported UAE’s plans to introduce a value added tax over the next 2–3 years, saying the move “would make the budget less vulnerable to oil price fluctuations.”

The IMF agreed that the exchange rate peg of the dirham to the dollar remains appropriate, providing “a strong and proven anchor in the stormy economic conditions that may lie ahead.”

issacjohn@khaleejtimes.com


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