Cheap oil erod­ing UAE fis­cal sur­pluses: IMF

The Pak Banker - - COMPANIES/BOSS -

DUBAI: 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.

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