UAE to sustain 4% growth rate

The UAE economy will continue to grow at four per cent in 2013, says Bank of America Merrill Lynch (BoAML) in a research note, referring to official estimates.

By Haseeb Haider

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Published: Mon 22 Apr 2013, 10:39 PM

Last updated: Sat 4 Apr 2015, 9:33 AM

The US based brokerage said the UAE Central Bank projected four per cent economic growth in 2012 and 2013, noting that the official plan to spend Dh330 billion over five years to increase oil production capacity could support hydrocarbon sector growth versus more pessimistic projections.

The note said that the UAE recovery is well entrenched and supportive global liquidity conditions are allowing Dubai to look past near-term maturities. Maturing restructured debt from 2015 onward is the key challenge, but there is little visibility and enough time for now. In the sovereign space, it said: “We prefer holding higher yielding Dubai paper, but view current spreads as tight.”

“Dubai has shown its ability to grow again, with a respectable four per cent pace easing deleveraging, and a perception that the real estate market has bottomed and in some segments seeing a V shape recovery,” BofAML observed.

The investment bank showed its confidence that Dubai will meet its debt obligations in the year, including what it called “the important 2013 maturities of debt instruments” issued by the Investment Corporation of Dubai and Borse Dubai.

According to the BofAML, the Dubai Department of Finance viewed the 2013 fiscal deficit target of Dh1.5 billion, about 0.5 per cent of GDP, to be within reach, moderately narrowing from 2012 levels and aiming for balance over the next two years. Completion of major capital expenditures plans including airport and tramway should allow it to hover around Dh5-6 billion in the year.

The UAE’s banking sector could largely be described as a conservative retail banking model with a strong domestic focus, it said, referring to the Central Bank of UAE officials. Non-performing loans appear to be stabilising at 8.6 per cent and capital adequacy rates are elevated at 20 per cent.

“The CBU considers all banks to be systemic and will not allow any to fail,” the note said.

The proposed mortgage regulation is meant to institutionalize the market, in consultation with banks, and is unlikely to slow down a largely cash-based real estate market.

Progress on establishing a marginal lending facility to improve banks’ liquidity management practice is ongoing, and work is being done to define a collateral mechanism.

While the draft public debt law was passed by the Federal National Council in December 2010, the UAE ministry of Finance required approval from each Emirate’s Executive Council and the UAE presidency.

The draft had set the debt ceiling for federal debt at 25 per cent of GDP, or Dh200 billion, whichever is lower, and would have paved the way for domestic and external debt issuance, improved the monetary transmission mechanism, and diversified emirates’ sources of funding.

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