UAE re­serves set to surge 9% to $83.7b in 2016

The Pak Banker - - BUSINESS -

The gross of­fi­cial re­serves of the UAE is pro­jected to grow 8.9 per cent to $83.7 bil­lion in 2016 from $76.8 bil­lion in 2015 and hit $118.4 bil­lion in 2020 as the econ­omy picks up grad­ual growth mo­men­tum over the next five years re­gard­less of the oil price plunge, a forecast by the In­ter­na­tional Mon­e­tary Fund shows.

In tan­dem with the surge in re­serves, the UAE will also wit­ness a grad­ual pick-up in its cur­rent ac­count sur­plus that has shrunk to a record low of five per cent of gross do­mes­tic prod­uct. Ac­cord­ing to the forecast, the cur­rent ac­count sur­plus is on track to rise from $17.6 bil­lion in 2015 to $22.6 bil­lion or 5.9 per cent of GDP in 2016, and would hit $33.4 bil­lion by 2020.

"Lower oil prices are erod­ing long-stand­ing fis­cal and ex­ter­nal sur­pluses, but the UAE has con­tin­ued to ben­e­fit from its per­ceived safe-haven sta­tus and large fis­cal and ex­ter­nal buf­fers that have helped limit neg­a­tive spillovers from lower oil prices, slug­gish global growth, and volatil­ity in emerg­ing mar­ket economies," the IMF said af­ter its board's Ar­ti­cle IV Con­sul­ta­tion with the UAE.

The UAE's non-oil growth, which re­mained ro­bust at 4.8 per cent in 2014 - driven by con­struc­tion, cap­i­tal spend­ing in Abu Dhabi and ser­vices un­der­pinned by Dubai's trans­porta­tion and hos­pi­tal­ity sec­tors - is pro­jected to slow down to 3.4 per cent in 2015 and would pick up steam from 2016 and post a 4.6 per cent growth by 2020.

"Real es­tate mar­ket prices have edged down since mid2014. With past in­creases in rents only feed­ing grad­u­ally into con­sumer prices, in­fla­tion in­creased to 4.3 per cent yearon-year in May 2015, also re­flect­ing up­ward ad­just­ments of elec­tric­ity and wa­ter tar­iffs in Abu Dhabi. Credit to the pri­vate sec­tor has picked up. GREs [gov­ern­ment-re­lated en­ti­ties] have con­tin­ued to strengthen their fi­nances," the IMF said.

The Washington-based fund said the eco­nomic out­look of the UAE is ex­pected to mod­er­ate amid lower oil prices.

"Growth in oil pro­duc­tion will likely to mod­er­ate given the global sup­ply glut. An­nual in­fla­tion is pro­jected to pick up to 3.8 per cent 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 per cent of GDP, but is ex­pected to re­turn to sur­pluses from 2016.

The cur­rent ac­count sur­plus is also pro­jected to de­cline sub­stan­tially to five per cent of GDP and will slowly in­crease with the pro­jected grad­ual re­cov­ery in oil prices. Credit growth is ex­pected to re­main sup­port­ive of the ac­tiv­ity," it said.

The fund sug­gested that in "an ad­verse sce­nario with a de­cline in de­posits, liq­uid­ity man­age­ment could be eased to sup­port credit growth. Gov­ern­ment deficit fi­nanc­ing should avoid a tight­en­ing in liq­uid­ity in the bank­ing sys­tem."

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