UAE to record huge current account surplus

The UAE is set to bask in a massive surplus for five years after plunging into deficit last year.

The UAE is expected to bask in a massive surplus in its current account for five successive years after it plunged last year into its first deficit in more than a decade because of lower oil prices and investment income.

Figures by the International Monetary Fund showed the country's current account, the difference between export and import of goods and services plus movement of funds, recorded a gap of around 3.1 per cent of real GDP in 2009 after maintaining a large surplus over the past 10 years due to high oil exports.

But the deficit is expected to rebound into a surplus of 7.8 and 7.7 per cent through 2010 and 2011 and remain in a surplus until 2015, when it will surge to nearly 11.1 per cent, the Washington-based Fund said.

The IMF gave no details for its forecasts but analysts believe the UAE would earn more from oil exports in the next few years as crude prices are projected to remain higher than in 2009 and the country could boost oil output in line with an expected rise in Opec's supplies to meet growing global demand.

Oil accounts for the bulk of the UAE's exports and persistent instability in crude prices has created sharp fluctuations in its budget and current account balances.

From around nine per cent of GDP in 2004, the UAE's current account surplus jumped to nearly 16.9 per cent in 2005 and peaked at 22.1 per cent in 2006 because of a sharp increase in oil prices. It slumped to about 9.4 per cent in 2007 and 8.5 per cent in 20078 despite a sharp rise in crude exports.

Analysts said the decline in 2008 was mainly because of a sharp fall in the UAE's investment income, as a large part of its overseas assets, controlled mostly by the Abu Dhabi Investment Authority (Adia) were hit by the global financial crisis in the fourth quarter of that year.

According to the New York-based Council on Foreign Relations (CFR), Adia's assets plunged by around $183 billion (Dh671.61bn) through 2008 because of the collapse in global equity prices. But the report added that there was a net flow of about $59bn into Adia's coffers due to the surge in oil export earnings.

Analysts believe high current account surpluses in the coming years would allow the UAE to replenish its overseas assets, mainly those of Adia.

Adia, one of the world's largest sovereign wealth funds (SWFs) has not disclosed the exact size of its assets, but estimates by the US SWF Institute showed it controlled nearly $627bn at the end of 2009.

What also depressed the UAE's 2008 current account surplus was an upsurge in the gross domestic product and a massive outflow of the funds placed by foreign banks with local banks in 2007 and pre-crisis 2008 to make quick profits in expectation that the country and other Gulf oil producers would appreciate their currencies against the US dollar.

The decline turned the country's surplus in the balance of payments into a record deficit of around Dh172bn, according to the Central Bank.


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