The IMF on Tuesday hailed the economic situation in the UAE, saying "the pursuit of a highly liberal, business friendly and market-oriented growth strategy continues to guide the evolution of UAE's economic development."
Openness and a sound record in macroeconomic management have enhanced the role of the private sector and contributed to the diversification of the economy.
In 2003, reflecting favorable developments in the oil market, higher oil production and prices, the UAE's macroeconomic performance is estimated to have been strong. Non-hydrocarbon real GDP growth is estimated to have remained robust at about 5 percent, one of the highest in the Gulf Cooperation Council area.
Inflation remained stable at 2.8 percent. Both the external current account and consolidated fiscal balances are estimated to have recorded large surpluses, 8.5 percent and 13.7 percent of GDP, respectively. The non-hydrocarbon deficit (excluding investment income) remained constant as a fraction of non-hydrocarbon GDP, at about 37 percent. The stock market index, which has been rising since 2001, increased sharply in 2003, by about 32 percent, on account of strong economic conditions and optimism regarding the economic outlook.
Foreign reserves of the central bank at end-2003 remained steady at about US$15.0 billion, equivalent to about 4.0 months of imports. The broad money stock increased by 16 percent, close to the rates of the previous two years, mainly on account of about 13.5 percent increase in private sector credit. Much of this credit was granted to wholesale trade, construction, and personnel loan sectors.
According to the IMF, the financial sector continued to perform well. The UAE banks remained well capitalized and profitable. While the gross nonperforming loan (NPL) ratio at end-2003 remained relatively high at 14 percent, though lower than 2001 and 2002, provisions are considerable, bringing the net NPL ratio below 2 percent.
The UAE authorities have undertaken a number of initiatives to improve financial sector supervision and efficiency. Several important steps have been taken to address money laundering and financing of terrorist activities. As a result, UAE is being regarded as a best practice model in this area. T
ighter regulations now apply across the entire financial sector. Many Hawala (informal money transfers) dealers have registered and been certified by the UAE central bank and are required to report on a quarterly basis their transactions records on transactions exceeding Dh 2,000. As of end-February 2004, the central bank has received 112 applications for registration and 89 certificates have been issued.
Considerable progress was made in 2003 in implementing plans to set up the Dubai International Financial Center (DIFC)- a financial free zone - an initiative of the Government of Dubai, which will deliver a comprehensive set of international financial functions.
Progress in introducing structural reforms has varied among the emirates. Dubai has extended foreign ownership of land and properties to some real estate developments and has also announced the launch of several new free zones. Abu Dhabi is moving ahead with utility privatization, with the objective to privatize its entire water and electricity sector by 2006.
Restrictions on foreign ownership of companies and properties, however, remain in place in Abu Dhabi. The federal government has been implementing a series of reforms that include a phased implementation of performance-based budgeting within a newly-introduced three-year medium-term budget framework and corporatization of various supporting services.
In the area of labor policies, to create employment opportunities for UAE nationals in the private sector the authorities have developed at the emirates' level programs to encourage domestic entrepreneurship and small and medium enterprises (SMEs). Key benefits of these programs are simple and streamlined application process, competitive interest rates, and favorable repayment terms. Also, a National Human Resource Development and Employment Authority was created to train nationals to ensure that they have adequate skills to be hired by the private sector. (menareport.com)
© 2004 Mena Report (www.menareport.com)
