UAE net foreign assets seen up $37bn in 2012

The UAE’s net foreign assets gained around $35 billion in 2011 and are projected to have swelled by a further $37 billion at the end of 2012, allowing the second largest Arab economy to easily shore up financial deficits, according to a Western report.

A surge in oil prices and output also boosted the UAE’s real GDP growth to 5.2 per cent in 2011 from 1.8 per cent in 2010 and growth is expected to have remained high at 4.1 per cent in 2012 before slipping to 3.5 per cent in 2013.

From around $342 billion at the end of 2010, the country’s net foreign assets grew to nearly $410 billion at the end of 2011 and were expected to have reached $447 billion at the end of 2012, said the report by the Washington-based Institute for International Finance (IIF), which groups major banks in industrial nations.

The report, issued in December, forecast the assets to peak at nearly $482 billion at the end of 2013, accounting for a whopping 126 per cent of GDP for that year.

“Such large financial resources will be more than adequate to finance likely external current account and fiscal deficits for several years if oil prices fall below $88 a barrel, which is the projected breakeven price of oil that balances the consolidated 2013 budget for the UAE,” said the report, sent to Emirates 24/7.

IIF described the UAE, which sits atop jess less than 10 per cent of the world’s recoverable oil deposits, as a “regional hub” adding that it has benefited from its status as a safe haven since the Arab turmoil began in early 2011.

“Non-hydrocarbon real GDP growth in the UAE continues to show solid expansion. The solid growth in Dubai’s core activities of trade, retail sales, and tourism will more than offset the continued retrenchment in the construction and real estate sectors,” it said, noting that Dubai’s hotel occupancy rate rose to 82.3 per cent in October 2012, nearly six percentage points higher than in October 2011.

The report showed overall growth in the UAE is expected to moderate to 3.2 per cent in 2013 on the back of flattening crude oil production in Abu Dhabi.

Progress in structural reforms (mostly in the legal and regulatory environment), the strengthening of federal institutions, and the enhancement of transparency and good governance in the corporate sector could accelerate the pace of economic growth to over four per cent in the medium term, it added.

A breakdown showed the oil sector drove growth in 2011, expanding by nearly 8.3 per cent on the back of higher output. In 2012, the oil sector is forecast to have swelled by 5.1 per cent and the non-hydrocarbon sector by about 3.9 per cent, IIF said.

It estimated the country’s fiscal surplus at 3.3 per cent of GDP in 2011 and expected it to widen to four per cent in 2012 and five per cent in 2013. The current account balance is also expected to expand from 11.9 per cent in 2011 to 15.9 per cent in 2012 before edging down to around 14.9 per cent in 2013, it added.

The report showed the UAE’s nominal GDP rose by 6.2 per cent to $374 billion in 2012 from around $352 billion in 2011, far lower than the 2011 growth of 19.7 per cent.

Turning to banks, it showed their collective deposits grew by around seven per cent in September, the fastest growth since August 2011. But it noted that credit growth remains subdued at 2.6%, year-on-year, in September.

“UAE banks are now in a stronger position than in 2008 to withstand another global downturn that could stem from the European debt crisis and U.S. fiscal cliff. The real estate market in the UAE appears to have bottomed out, and has started to recover in certain parts of Dubai,” IIF said.

It showed the combined provisions of banks have continued to rise from the equivalent of $19.5 billion at end-2011 to $22.6 billion at end- September 2012.

The current provisions cover 86 per cent of NPLs, assuming that NPLs account for eight per cent of total loans, it said.

“Empirical analysis suggests that high NPLs tend to hold back credit growth, and may partly explain why private sector credit growth has been very low since the crisis.”

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