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UAE adjusting well to new oil reality: IMF

The International Monetary Fund (IMF) has said that the UAE is adjusting well to the uncertainties of oil market as the country has diversified its economy and its non-oil growth is set to rebound this year.

The fund made the remarks after completing its annual mission to the country and holding discussions with federal and local authorities.

Adjusting well

“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,” said Natalia Tamirisa, Assistant to the Director of the Research Department at IMF, who led the mission to the Emirates.

On the back of stronger global trade and increased Expo 2020-driven investments, the country’s non-oil growth is projected to rise to 3.3 per cent in 2017.

On the other hand, oil GDP is forecasted to decline by 2.9 per cent as a result of significant cuts in oil production after the last year’s OPEC agreement.

Overall growth will ease to about 1.3 per cent in 2017, before recovering to more than three per cent over the medium term, the IMF mission said in a statement.

Average inflation is projected to rise to 2.2 per cent this year.

Deficit decline

On a positive note, the government’s budget deficit is projected to decline to 4.5 per cent of GDP, with the prospects of firmer oil prices. The current account surplus is expected to improve to 2.4 per cent of GDP.

“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,” Tamirisa said.

“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,” she added.

Tamirisa called on the UAE to continue policy initiatives that will enhance business environment and competition so that the nation can attract more foreign direct investment and diversify the sources of growth.

On small and medium enterprises (SMEs), she said that further improving access to finance for such enterprises “would foster entrepreneurship and create private sector jobs, including for women.”

“Multi-pronged efforts to promote innovation and improve the quality education and healthcare would nurture talent and raise productivity.”

Tamirisa also commented the federal and local authorities for making progress in strengthening data collection and coordination among statistical agencies, saying that 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.