The UAE’s large financial buffers, diversified economy and robust policy responses are facilitating adjustment to the new oil-market realities while safeguarding the economy and the financial system, the IMF said today following the completion of its annual Article IV consultations with the emirates.
“Non-oil growth is projected to rise to 3.3 per cent in 2017, reflecting more gradual fiscal consolidation, stronger global trade, and higher Expo 2020 investment,” the IMF said in a statement. “Reaching the goal of returning gradually to a balanced budget over the medium term would save resources for future generations.”
The findings of IMF Article IV mission will be presented to the IMF Executive Board for consideration by end-June 2017.
“Growth is set to rebound,” the IMF statement said. “Non-oil growth is projected to rise to 3.3 per cent in 2017, reflecting more gradual fiscal consolidation, stronger global trade, and higher Expo 2020 investment. Oil GDP is projected to decline by 2.9 per cent reflecting agreed OPEC cuts in oil production. As a result, overall growth will ease to about 1.3 per cent in 2017, before recovering to above 3 per cent over the medium term.”
Average inflation is projected to rise to 2.2 per cent in 2017. The UAE budget budget deficit is projected to decline to 4.5 per cent of GDP and the current account surplus to improve to 2.4 per cent of GDP in 2017.
“…overall growth will ease to about 1.3 per cent in 2017”
The IMF called for continued efforts to rationalise spending and improve its efficiency, including through careful cost-benefit analysis and continued review of government-related enterprises’ (GREs) infrastructure investments. A timely introduction of the VAT and excises would diversify government revenues.
“Close coordination of cash flow and liquidity management among the governments, GREs, and sovereign wealth funds would improve predictability in government financing flows and banking system liquidity, fostering continued healthy credit growth in support of private sector activity,” the IMF said. “The approval of the debt law would facilitate the development of the domestic debt market, creating an additional instrument for government financing and bank liquidity management over time.
“A stronger fiscal policy framework supported by better fiscal data would facilitate decision-making and help align governments and GRE spending more closely with the National Agenda’s goals of raising productivity and diversifying future sources of growth,” the IMF said. “Close monitoring of contingent liabilities would help mitigate an undue buildup of fiscal risks.”
The IMF called for the swift approval of the draft central bank and banking law would strengthen the prudential policy framework.
“Continuing policy initiatives to enhance business environment and competition would attract more foreign direct investment and diversify the sources of growth,” the IMF said. “Further improving access to finance for small and medium enterprises would foster entrepreneurship and create private sector jobs, including for women. Multi-pronged efforts to promote innovation and improve the quality education and health care would nurture talent and raise productivity.”