The UAE's anti-crisis stimulus measures as a percentage of gross domestic product (GDP) are the largest among global emerging markets, ahead of similar programmes in China, Russia, Kuwait and Hong Kong.
The UAE Central Bank has put in place two support packages worth Dh120 billion to boost liquidity. It has also guaranteed bank deposits and allowed lenders to perform dirham-dollar swaps. The Abu Dhabi Government pumped about Dh16bn into a recapitalisation exercise involving five banks. These measures constitute about 16 per cent of the country's 2008 GDP, larger than China's 14 per cent, Russia's and Kuwait's 11 per cent, and Saudi Arabia's 7.5 per cent.
Preliminary indicators of UAE's economic performance during 2008 have shown that GDP at fixed prices amounted to Dh535.6bn in 2008 at a growth rate of 7.4 per cent as against Dh498.7bn and 5.2 per cent in 2007. GDP at current prices totalled Dh929.4bn in 2008 over Dh729.7bn in 2007.
Sizeable external assets allowed Middle Eastern countries to help their banking sector. "Oil-rich countries in the Middle East have used some of their sizeable external assets to inject liquidity into their banking sectors. For example, UAE's Central Bank recently launched a large liquidity facility aiming to help the financial sector cushion the slowdown and regain investors' confidence.
Overall, the UAE anti-crisis package is the largest among emerging markets," Maria Laura Lanzeni, a senior analyst at Deutsche Bank wrote in a note.
Gulf nations such as the UAE, Kuwait and Saudi Arabia have significant fiscal leeway to support their economies as they have accumulated fiscal savings in the past few years and public sector debt levels are low.
Among emerging nations, Russia, Chile, Hong Kong, South Korea and Peru are other examples of countries that can rely on their fiscal resources to offset the effects of the global slowdown with a relatively low risk of losing fiscal credibility, according to Deutsche Bank data.
Lanzeni warns, however, that unveiling stimulus packages is not the same as implementing them. "The success of these plans will depend on governments' capacity to rapidly inject these resources into productive use. One way to assess the likelihood of package implementation is to look at an index of 'government effectiveness' such as that compiled by the World Bank," she said.
The UAE has the highest score on this index among Arab economies, but is still eighth overall among emerging nations. Kuwait, Saudi Arabia and Egypt are placed further down on the chart.
Saudi Arabia on Tuesday virtually admitted that stimulus measures have not percolated to the real economy by slashing its benchmark reverse repo rate to free up more liquidity.
The surge in lending to the private sector seen in 2008 has lost momentum, and has actually reversed in some cases, as a crisis of confidence has hit the banking sector, said Delphine Arrighi, fixed-income strategist at Standard Chartered bank in Dubai. Tighter credit conditions are also reflected in the deterioration of the Saudi Arabian Monetary Authority's business confidence index to 88.3 in May from 89.2 in April.
However, "in contrast to previous episodes of stress in emerging economies, this time governments have reacted fast and decisively and, most importantly, have in general been able to provide fiscal and monetary stimulus without running into a confidence crisis," Lanzeni said.
"The crisis is not over yet and we do not rule out additional bumps in the road. However, it is fair to state that in a more globalised world characterised by stronger linkages among economies, emerging markets are proving to be better prepared to face external shocks than in the past."
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