Business houses across the country have welcomed the much-needed AED 100 billion ($27.2bn) economic stimulus plan announced by the UAE Central Bank on Saturday. The stimulus measure is part of a comprehensive action plan to help corporates and customers overcome the liquidity and solvency crisis, at a time when the coronavirus outbreak and the oil price collapse are adversely affecting deposits and lending.
“The Central Bank of the UAE’s initiative to alleviate the strain on industry finances in the light of Covid 19 could not have come at a better time as levels of uncertainty are entering the markets work wide,” says Lewis Allsopp, CEO of Allsopp & Allsopp. “The Loan-To-Value (LTV) increase of 5% for first-time buyers brought by the initiative is welcomed. This is something that has been long mooted, even before the Covid-19 outbreak, and it now gives buyers who are saving for a deposit a helping hand to make their first UAE property purchase.”
He added that this is coupled with interest rates being at their lowest levels for a long time and property prices being at an attractive and affordable level. “Something that may be missed by many is the Central Bank’s instruction to be considerate to those with a current mortgage at the moment and offer assistance where necessary. This adds a level of comfort and confidence into making an investment in Dubai.”
Preventing economic collapse
Investment and trading solutions provider Century Financial has also hailed the move as a ‘much-needed’ measure. Bal Krishen, Chairman and CEO, Century Financial, told AMEinfo: “The relaxation of capital buffers as well as giving interest-free loans to banks will push more money into the system and will prevent a sudden collapse in the economy. This is very much needed as many of the UAE businesses are globally exposed and they could be facing supply as well as payment disruptions. Individuals with good credit rating will also be able to make use of the relief measures since they are facing difficulties due to factors beyond their control.”
The scheme includes an amount of AED 50bn from Central Bank funds through collateralized loans at zero cost to all banks operating in the UAE and Dh50bn funds from the banks’ capital buffers.
According to Samer Hijazi, Partner at Grant Thornton Abu Dhabi, one of the world’s largest professional services network of independent accounting and consulting member firms, this stimulus is similar to the UAE Central Bank’s reaction back in 2008, when it intervened to support the banking sector in withering the storm of the credit crunch. “The size of the package and its timely arrival sends a clear signal to the local and international markets that the UAE will continue to be open for business in a sustainable manner. As such, we can expect that the package can prove to be a relief and a much-needed boost to the UAE banks, their customers, and most importantly, it will be a huge boost to address the currently low market confidence in these uncertain times,” he told AME Info.
Generous and well-thought
Comparing the stimulus with other coronavirus-hit nations, the sum appears generous and well-thought out. “According to the latest IMF estimates, UAE’s GDP is $405 billion and the current stimulus works out to almost 6.67%of the economy. For comparison, Italy which is ravaged by the Coronavirus and with an economy worth almost $1988 billion has only announced a $28 billion stimulus and other major economies also have not announced any big program relative to the GDP size.”
The European Central Bank was recently criticized for a lackluster response as its stimulus package announced fell short of market expectations. In contrast, UAE’s stimulus package seems big and reflects the determination of its policy makers to insulate the economy from global weakness, Kishen points out.
According to Shailesh Dash, UAE-based entrepreneur and financier, the effectiveness of the measure would depend on the speed with which it is implemented. “Everything now depends on the speed and the correct implementation of the scheme,” he said, and added that if implemented immediately and correctly, it will certainly help the banks and increase the lending activity in UAE at the correct pricing and terms which is actually the need of the hour.”
Saudi, too, is stepping up, with funding that aims to grant SMEs six-month deferrals on bank payments, concessional financing and exemptions from the costs of a loan guarantee program, according to Reuters.
Meanwhile, the UAE is putting in place strict measures to contain the spread of the Covid-19 virus and reduce its impact. While daily cleaning and sanitizing of public transport is already in place, the government announced earlier today that all entertainment centres, events, gyms, and movie halls will be shut from today till further notice.