IMF Optimistic Over UAE's Growth Outlook Citing High Oil Prices

Published October 2nd, 2018 - 05:22 GMT
With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 per cent this year and 3.7 per cent next year. (Shutterstock)
With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 per cent this year and 3.7 per cent next year. (Shutterstock)

The International Monetary Fund (IMF) on Monday hiked the UAE's growth forecast for 2018 and 2019 on the back of higher oil prices, continued reforms to promote the private sector and increased government spending.

"With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 per cent this year and 3.7 per cent next year. Inflation is projected at 3.5 per cent this year owing to the introduction of the value-added tax and should ease afterwards," according to preliminary findings of an IMF team led by Natalia Tamirisa, who visited the UAE from September 16 to 30, 2018.

Earlier in April, the IMF had cut UAE's real GDP growth forecast for the UAE to 2 per cent for 2018 and 3 per cent for the next year.

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While painting a rosy picture of the UAE's economy, the IMF said the UAE's growth is expected to strengthen over the next few years. The fiscal deficit is expected to remain stable at about 1.6 per cent of GDP this year and turn to a surplus next year. The current account surplus will exceed seven per cent of GDP this year.

It said continued reforms to promote the private sector and strengthen policy frameworks and coordination would improve medium-term prospects and diversify sources of growth.

The UAE, both at federal and each emirate level, have announced a host of reforms and initiatives such as reducing fee for licences, Dh50-billion stimulus package, 10-year visa for investors and professionals among others to improve country's economic growth and make it more competitive.

Y.S. Shashidhar, partner and managing director, Frost & Sullivan, said the government's initiatives and stimulus package will certainly boost UAE's GDP.

"Yes, certainly! The UAE government's initiatives and stimulus will increase the UAE's GDP. Overall, one can expect a growth of 1.5 to two per cent, but more importantly the focus will be on non-oil growth which could grow in the short term by 2.5 to three per cent. However, in the medium term, with all the industrial strategies in place, it could also clock a growth of more than four per cent," Shashidhar added.

Lenie Assaad, associate, Al Etihad Financial Advisors, said with constant government initiatives including increased investments in infrastructure, a buoyant trade and tourism sector, crucial policy that lower commercial fees and special visa controls, the UAE's economy is bouncing back with a noticeably improved performance. With governmental strategies of guidance, incentive and control, the UAE is expected to undergo a positively impacted growth in the upcoming months.

"Economic diversification in the UAE is encouraged by shifting to an innovation and knowledge-based economy, contributing to a more sustainable growth within the country. This shift will not only increase investments by multinational firms, but also enhance market performance following a facilitated information dissemination, enabling the UAE to compete on an international level," Assaad said.

"Over the medium term, as oil prices are projected to soften, a return to the path of gradual fiscal consolidation would help save an adequate portion of the exhaustible oil income for future generations. Continued improvements in spending efficiency and strengthening non-oil revenue, including by gradually replacing a system of numerous and regressive fees with corporate taxation, would help achieve these goals," the IMF said in a statement.

The IMF suggested that continued upgrading of bank regulations and strengthening bank supervision are essential to maintain the resilience of the banking system.

It said fiscal easing is warranted in the near term; once the recovery gains momentum, a return to a path of gradual and growth-friendly fiscal consolidation would ensure sufficient savings for future generations.


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