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Dubai, Abu Dhabi on opposite sides of spending: Did that impact growth?

The UAE’s economy is on continuous growth, and according to a recent report, the economy will continue to prosper in the upcoming years.

It is expected to grow 2.1% this year and 3.9% next year as non-oil growth rebounds on higher government spending, particularly in Dubai, according to Moody’s Corporation, a research and analysis company.

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“Despite the UAE’s relatively high exposure to hydrocarbons, the oil price drop did not dramatically alter the economy’s medium-term real growth trajectory,” the rating agency said in a report published on their official website.

What will narrow the deficit? 

The UAE shows a diverging path between Abu Dhabi, where broad spending cuts were enacted, and Dubai, which has continued to increase spending ahead of the World Expo 2020, according to Moody’s.

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Moody’s expect UAE’s fiscal deficit to be narrowed to 0.8% in 2018 from a 2.3% of GDP in 2017, this is mainly due to fiscal consolidation in Abu Dhabi and higher oil prices, which touched $80 a barrel last week.

The crash in oil prices that happened 3 years ago resulted in a huge fiscal gap, according to Moody’s.

However, the report explains that “the large stock of financial assets means that the government can easily finance its deficits without resorting to debt issuance.”

UAE’s stability is supported by the financial backing of Abu Dhabi’s large hydrocarbon reserves and high wealth levels, according to Thaddeus Best, a Moody’s analyst.

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IMF in line with Moody’s

Moody’s report’s numbers are close to the International Monetary Fund’s (IMF)’s projections which put UAE at a growth of 2% in 2018 and 3.6% in 2019.

Graph: Real GDP growth Annual percent change Graph: Real GDP growth Annual percent change

The IMF, however, is projecting a fiscal surplus of 0.5% of GDP this year because of higher-than-expected oil prices offsetting the uptick in government spending.

Oil gross domestic product (GDP) will not grow this year due to the UAE’s compliance as an Opec member with global oil output curbs that are in place till the end of this year, according to the IMF.