The UAE’s economy is at a “turning point” as government-led stimulus, Expo 2020 investment, higher oil prices and a pause in monetary tightening by the Federal Reserve, accelerate growth momentum, the IMF said.
The IMF said that some government-related entities are embarking on new investment plans, while the implementation of emirate-level stimulus is expected to accelerate amid higher oil prices.
Against this background, the IMF, which completed a mission to the UAE on May 1, forecast growth could exceed 2 per cent this year and approach 3 per cent in 2020-21.
The IMF mission was led by Koshy Mathai who said: “The economy continued to adjust last year. Corporate consolidation and structural reforms, including in large government-related entities and commercial banks, as well as the fiscal position, weighed on aggregate demand. Given the dollar peg, the dirham appreciated against currencies of major trading partners and interest rates rose in general.
“All this occurred against the backdrop of weaker external demand and intensified geopolitical tensions. Non-oil growth slowed to 1.3 per cent in 2018, while the overall economy grew at 1.7 per cent, benefiting from increased oil production.”
He added: “Some green shoots are now emerging, with domestic credit growth, employment, and tourist arrivals showing improvement recently, though the real estate sector continues to face an overhang of supply. The economy may now be at a turning point, supported by public spending.”
The IMF noted that the UAE economy has gone a long way toward diversification, but government spending and some sectors are still affected by oil price fluctuations.
It added that sustaining strong growth after Expo 2020 and the fiscal stimulus will require capitalising on new growth drivers that are decoupled from oil prices, and this, in turn, will require the authorities to build on their ongoing structural reform momentum.
It recommended reducing the footprint of the public sector, levelling the playing field with private-sector participants to boost productivity growth. Strengthening the enabling environment for SMEs and building on recent reforms to encourage foreign direct investment (FDI) are additional priorities.
Mathai said the recent adoption of the federal debt law was welcome, adding that the issuance of local-currency government securities should proceed in order to establish a benchmark yield curve.