DUBAI 17 May 2017: UAE non-oil economy is set to grow by 3.3 per cent in 2017, according to a statement by the International Monetary Fund (IMF) chief of mission to the UAE.
An International Monetary Fund (IMF) mission, led by Natalia Tamirisa, visited the United Arab Emirates (UAE) from April 30 to May 14, 2017 for the annual Article IV discussions. The findings of the mission, subject to management approval, will be presented to the IMF Executive Board for consideration by end-June 2017.
At the end of the mission, Ms. Tamirisa issued the following statement:
“The UAE is adjusting well to the new oil market realities. Its large financial buffers, diversified economy and the authorities’ robust policy responses are facilitating the adjustments while safeguarding the economy and the financial system.
“Growth is set to rebound. 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 percent in 2017, before recovering to above 3 percent over the medium term. Average inflation is projected to rise to 2.2 per cent in 2017. With the prospects of firmer oil prices, the government’s 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.
“Existing financial buffers allow fiscal consolidation to proceed gradually. Reaching the goal of returning gradually to a balanced budget over the medium term would save resources for future generations. This requires continued efforts to rationalize 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 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. Close monitoring of contingent liabilities would help mitigate an undue buildup of fiscal risks.
“Banks’ liquidity and capital buffers are helping them cope with lower oil prices. The central bank’s actions to phase in Basel III liquidity and capital requirements should further strengthen the resilience of the banking system. Swift approval of the draft central bank and banking law would strengthen the prudential policy framework.
Ongoing efforts to further enhance the Anti-Money Laundering/Combating the Financing of Terrorism framework are welcome.
“Continuing policy initiatives to enhance business environment and competition would attract more foreign direct investment and diversify the sources of growth. 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.
“The federal and local authorities have been making progress in strengthening data collection and coordination among statistical agencies. Enhancing economic statistics to bring them up to par with the UAE’s high level of economic development and sophistication would facilitate policy analysis and decision-making.
“The IMF team is grateful to the authorities for their gracious hospitality and insightful discussions.”
By Eudore R Chand