IMF 'urges UAE to cap public sector wages'

Advisor says UAE must continue to take steps to curb expanding budget deficit
IMF 'urges UAE to cap public sector wages'
By Sarah Townsend
Wed 11 May 2016 11:33 AM

The UAE must restrain its public sector wage bill to plug an expanding budget deficit, according to the International Monetary Fund (IMF)’s Middle East mission advisor.

Zeine Zeidane, an advisor in the Middle East and Central Asia Department at the IMF, was quoted as telling The National that, as there is no substantial increase in the size of the civil service, “the UAE government should continue to control the wage bill, and not increase it”.

The IMF expects the UAE’s budget deficit to reach 7.2 percent of GDP in 2016. The country was expected to run a full-year deficit of about 2.1 percent of GDP in 2015 – undershooting the IMF’s projections of a 5.5 percent deficit for the full year.

However, the deficit is widening as the oil price looks set to average around $40 per barrel this year – below the $50 per barrel average last year, according to the IMF.

Zeidane said the UAE should “continue to phase out subsidies” in 2016, rather than cutting public investment spending.

“There is still a lot to do in terms of economic diversification,” he was quoted as saying. “There needs to be structural reforms – to improve the business environment, be more open to foreign direct investment (FDI), to trade, to skills from abroad, and to strengthen competitiveness. The authorities need to create conditions for healthy competition.”

He also said the UAE’s move to issue international debt would help to plug the deficit, the newspaper reported.

Abu Dhabi sold $5 billion in international sovereign bonds last month – the issue was 3.4 times oversubscribed. And sovereign wealth fund Mubadala is reported to be close to selling upwards of $500 million in new bonds, Reuters reported last month.

“We are fully supportive of new debt issuance, and would advise the authorities to be careful on the domestic market to avoid crowding out of private sector, and encourage them to tap international markets rather than drawing down on assets,” Zeidane said.

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