UAE’s economic recovery to accelerate, IMF says
The UAE’s economic recovery is gaining momentum and is expected to accelerate, driven by the country’s “rapid and strong response” to the pandemic and the rapid mass vaccination program, according to the International Monetary Fund.
“We expect non-oil GDP growth to exceed 3% this year and improve further over the medium term, while oil GDP will continue to grow with increased production,” the Washington-based lender told the conclusion of its article IV. Consultation with United Arab Emirates officials.
The fund projects the UAE’s economy to grow 3.1% in 2021. This is more than the estimate of the UAE Central Bank, which predicts the Arab world’s second-largest economy to grow. 2.1% this year and 4.2% in 2022, according to its second quarter review.
Sluggish global demand, falling oil prices and reduced oil production under the OPEC + agreement weighed on fiscal and external balances last year, but “rising oil prices oil will raise fiscal and external balances, ”said Ali Al-Eyd, who led the IMF talks. .
Moody’s Investors Service on Thursday assigned a senior unsecured foreign currency rating (P) Aa2 to the UAE government’s global medium-term note program. The note is supported by the country’s very high per capita income, large hydrocarbon reserves and domestic political stability, he said in a note.
Aa2 is the third highest long-term credit rating Moody’s assigns to fixed income securities such as government bonds, indicating their very low credit risk. Moody’s said it “expects Abu Dhabi’s balance sheet to remain among the strongest in the Gulf Cooperation Council (GCC) and nominal UAE GDP to return to pre-pandemic levels over the next two to three years “.
Despite uncertainty about the shape of the global economic recovery, “the UAE’s strong reform momentum poses an upside risk to growth,” IMF Al-Eyd said.
A rebound in tourism and economic activity generated by the postponement of Expo 2020 also helped support the country’s recovery from the slowdown caused by the pandemic, according to the IMF.
“The United Arab Emirates acted quickly to deal with the health and economic effects of the Covid-19 pandemic and the economic recovery has started to strengthen,” Al-Eyd said.
Although the economy contracted 6.1% in 2020 due to the global economic slowdown and suffered a “temporary” recession, growth rebounded sharply, boosted by pandemic mitigation measures, the Minister said. IMF. The country is one of the most vaccinated countries in the world with more than 20 million doses administered, enough to cover more than 93% of the population, according to global vaccine tracking data from Bloomberg.
Widespread testing and tracing, strict safety measures and the high vaccination rate reduced daily infection from nearly 4,000 in January to 270 on Wednesday, according to government data.
The government’s monetary and budgetary support has also helped to accelerate the growth momentum. The Emirates have introduced an economic stimulus worth 388 billion dirhams ($ 105.72 billion) since the start of the pandemic. These packages include the central bank’s 50 billion dirhams (Tess) targeted economic support program to increase liquidity in the financial and banking sector, parts of which have been extended until June 2022.
“For the future, a gradual recovery is expected in 2021, supported by the early and strong health response of the United Arab Emirates, the pursuit of supportive macroeconomic policies and the rebound in tourism and domestic activity linked to the postponement of the ‘Expo 2020, which is due to start in October, “said Mr Al. -Eyd said.
The UAE’s current macroeconomic policy mix remains “appropriate,” the Washington-based lender said. However, support measures should target viable sectors, businesses and people who need them most. “For the recovery to be sustainable, protecting public health through continued vaccination and screening efforts for all nationals and residents remains the top priority. “
Further fiscal stimulus and structural reforms, including attracting highly skilled professionals, supporting private sector employment, increasing trade and foreign investment should be priorities, the IMF said.
The IMF said the liquidity and capital of the UAE banking system remains strong, as “a swift and substantial policy response and clear and proactive communication from the UAE Central Bank has been critical throughout the crisis ”.
“Ensuring financial stability through continuous risk surveillance will further strengthen the resilience of the financial system,” the IMF said. “Ongoing efforts to strengthen macroprudential and regulatory frameworks will further support these efforts. “
In the medium term, the UAE should focus on a smooth adjustment to an “environmentally sustainable global economy” and pursue reforms.
“This requires gradual but marked fiscal consolidation in the context of a credible medium-term fiscal framework,” the fund said.
The IMF has said the country’s ambitious 50-year reform program is “a huge promise” to generate higher levels of diverse and inclusive economic growth in the future.
“This comes at an important time for the UAE as they celebrate their Golden Jubilee and seek to leverage their talent, knowledge base and vision for sustainable and smarter future growth,” Mr. Al-Eyd said.
Achieving this result requires “prioritization and sequencing” of reforms and the integration of strategies and policies at different levels of government, he said.
Update: September 30, 2021, 2:00 p.m.