By Staff writer
International Monetary Fund says UAE has still been able to 'limit negative spillovers' from lower oil prices
Lower oil prices are eroding the UAE's long-standing fiscal and external surpluses, but the country has continued to benefit from its perceived safe haven status, according to the International Monetary Fund.
In a new report, the Executive Board of the IMF said the UAE was still benefiting from large fiscal and external buffers that have "helped limit negative spillovers from lower oil prices, sluggish global growth, and volatility in emerging market economies".
It added that the UAE's non-oil growth remained robust at 4.8 percent in 2014, driven by construction, notably owing to capital spending in Abu Dhabi, and services underpinned by Dubai’s transportation and hospitality sectors.
The IMF report said real estate market prices have edged down since mid-2014. With past increases in rents only feeding gradually into consumer prices, inflation increased to 4.3 percent year-on-year in May, also reflecting upward adjustments of electricity and water tariffs in Abu Dhabi.
"The economic outlook is expected to moderate amid lower oil prices. Non-oil growth is projected to slow to 3.4 percent in 2015, before increasing to 4.6 percent by 2020, supported by the implementation of megaprojects and private investment in the run-up to Expo 2020," the IMF noted.
It said growth in oil production will likely moderate given the global supply glut while annual inflation is projected to pick up to 3.8 percent in 2015.
"The overall fiscal balance this year is expected to turn negative for the first time since 2009 to record a deficit of 2.9 percent of GDP, but is expected to return to surpluses from 2016," the IMF report said, adding that the current account surplus is also projected to decline substantially, to 5 percent of GDP and will slowly increase with the projected gradual recovery in oil prices.
The Executive Board said fiscal consolidation in the UAE requires rationalisation of spending, but the quality of spending cuts is crucial to avoid damaging the country’s competitiveness and long-term growth prospects.
"Government investments should be preserved relative to non-hydrocarbon GDP to support infrastructure... Public sector wage bill growth should be controlled while energy subsidies and capital and other transfers should be reduced. Raising more non hydrocarbon revenues through new tax measures should also be considered," it said.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.