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10 December 2023

UAE resilient to low oil prices, sluggish global growth: IMF

By Vicky Kapur

The UAE has continued to benefit from its perceived safe haven status and large fiscal and external buffers that have helped limit negative spill-overs from lower oil prices, sluggish global growth, and volatility in emerging market economies, the International Monetary Fund (IMF) said yesterday.

In a new update on the UAE’s economy, the IMF noted that the country’s non-oil growth remained robust at 4.8 per cent in 2014, driven by construction, notably owing to capital spending in Abu Dhabi, and services underpinned by Dubai’s transportation and hospitality sectors.

The global agency lauded the country’s efforts at reining in spending by undertaking a number of steps, including reducing energy subsidies. “The authorities’ plan to consolidate the fiscal position is appropriate, and would reduce fiscal vulnerability and ensure intergenerational equity,” the report stated.

Dubai delivers

Dubai undertook a major financial overhaul of its government-related enterprises (GREs) since the global slowdown in 2008, repaying a bulk of its debt before time.

“In Dubai, the major debt restructurings from the 2008/9 crisis have been completed, several GREs made early repayments of upcoming maturities, and Dubai World agreed with its creditors to reschedule a large maturity due in 2018,” the report states.

“With this, stronger financial positions and lengthened maturity profiles have further reduced debt-related risks,” the IMF said, noting that total government and GRE debt in Dubai currently stands at 136 per cent of Dubai GDP.

“In Abu Dhabi, GREs have substantially reduced their debt, and upcoming maturities in the medium term are significantly lower than the levels expected last year,” it said.

Spending curbs

“Fiscal consolidation will also help bring the external position closer to the level consistent with medium-term fundamentals. The authorities’ monetary policy framework, which aims to maintain the peg while strengthening liquidity management and deepening money markets, is appropriate,” it added.

The IMF said that while lower global oil prices are chipping away at oil producers’ fiscal and external surpluses, the impact on economic activity in the UAE has been limited owing to its large buffers.

The overall fiscal balance this year is expected to turn negative for the first time since 2009 to record a deficit of 2.9 per cent of GDP, but is expected to return to surpluses from 2016, the IMF said.

The current account surplus is also projected to decline, to 5 per cent of GDP and will slowly increase with the projected gradual recovery in oil prices. Credit growth is expected to remain supportive of the activity, it noted.

Credit to the private sector has picked up, it said, adding that government-related enterprises (GREs) have continued to strengthen their finances.

The agency added that real estate market prices have edged down since mid-2014 while inflation is projected at 3.8 per cent in 2015.

The UAE’s banking sector is well capitalised, liquid, profitable, and with low levels of non-performing loans (NPLs), the IMF said.

The IMF expects non-oil growth to slow down a tad this year, to 3.4 per cent, but e=reckons that the pace will once again pick up to 4.6 per cent by 2020 thanks to the announced mega-projects and private investments set to flow into the economy in the run-up to Expo 2020.

“With past increases in rents only feeding gradually into consumer prices, inflation increased to 4.3 per cent year-on-year in May 2015, also reflecting upward adjustments of electricity and water tariffs in Abu Dhabi,” it said in the report.