UAE set for 60 per cent growth by 2012 says IMF

This study assumes that oil prices will remain in the mid-$60-a-barrel range for the forecast period, and that oil production will rise from 2.58 to 3.05 million barrels per day in 2012. Non-hydrocarbon revenues are set to double to $49bn, of which a half will be from investments.

Gross domestic investment as a percentage of GDP will continue at the very high level of 21-26 per cent for the five years, with national saving as a proportion of GDP above 40 per cent.

However, the report noted that external borrowing by financial institutions and large corporations had tripled over the past two years to $80bn at the end of 2006. But given the UAE's large net creditor position this gives the IMF no cause for alarm, and the financial system remains sound.

Realty vulnerability

Specifically the IMF notes that a few banks, accounting for a quarter of bank assets, would be vulnerable to a severe correction in real estate markets, with Dubai banks the most exposed.

Not surprisingly in the context of such a high growth economy the IMF says a key challenge is to contain inflation, driven by housing rental price increases and strong demand growth. The IMF counsels a coordinated phasing of some large-scale investments to help contain domestic demand growth.

The report lists investment projects in the UAE with an estimated valued of $227bn over the next 10 years, even after an adjustment to reflect actual rather than proposed investment levels. Dubailand, for example, is valued at $10bn rather than the $60bn headline figure for the fully-completed theme park.

Abu Dhabi top

Hydrocarbon projects are totaled at $35bn and manufacturing at $7bn, transport infrastructure at $33bn and the balance is real estate. Total investment in Abu Dhabi over the decade will be $161bn, rather higher than the $63bn in Dubai and $2bn in Ras Al Khaimah.

Meanwhile, the IMF says the authorities remain committed to the US dollar peg to the dirham and claim a nominal revaluation is neither needed nor would it be beneficial to the economy. It points out that most exports and imports are US dollar denominated and that a large proportion of foreign assets are invested in US dollar instruments.

The report also commented on the regional spillover effect from the growth in the UAE economy, with nations such as Pakistan and Egypt benefiting from UAE direct investment, as well as Jordan, Syria, Morocco and Tunisia.

In short, the IMF presents a picture of sustainable high growth levels in the UAE, with the diversification of this hydrocarbon based economy proceeding apace thanks to huge domestic investment.

See also:
China ripe for Middle East investment