In an effort to curb an excessive spike in the money supply in the UAE, Emirate authorities will likely tighten bank credit of the private sector. The rise in supply is believed to be, in part, a result of marked influx of capital in 2005.
Such a rise is associated with an increase in lending to the private sector which grew 24.7% in 2004 as opposed to 13.5 percent in 2003.
An increase in money supply is just one of many monetary and fiscal policy challenges faced by UAE financial authorities, including curbing the country's non-oil fiscal deficit.
"The remarkable inflows of foreign capital are expected to increase money supply significantly in 2005," stated a report by the National Bank of Dubai in its quarterly economic report, according to <i>Gulf News</i>.
"To avoid rampant growth in money supply, the authorities might need to tighten the banking sector's credit growth to the private sector through several control measures," the report added.
Authorities are also expected to examine the possible impact on the country's monetary system by the establishment of free zones such as the Dubai International Financial Center (DIFC).
It also added that in an attempt to meet pension liabilities, government expenditure might increase in the future, in addition to investments in health and education.
