IMF raises UAE growth forecast on oil and spending expectations

The fund called on the UAE to carry out deeper and broader reforms to increase the role of the private sector

The International Monetary Fund raised its forecast for the UAE’s economic growth this year and next on expectations that oil production and government spending will increase.

The Gulf nation’s economy is projected to expand 2.9 per cent this year and 3.7 per cent in 2019, Natalia Tamirisa, the IMF’s UAE mission chief, said on Sunday.

“Given large fiscal buffers, ample spare capacity, and rising investment needs for Expo 2020, the Government has appropriately switched to providing stimulus to the economy,” said Ms Tamirisa.

The UAE announced new policies this year to spur ecgrowth and investment, including changes to the country’s sponsorship system and new regulations that permit companies to operate without a physical office.

The measures follow a threeyear Dh50bn stimulus package for Abu Dhabi announced in June. Known as Ghadan 2021 (Tomorrow 2021), it has 50 initiatives to stimulate investment and job creation. It aims to slash red tape and boost investor confidence in the emirate’s economy.

“Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity, would augment their impact on growth,” Ms Tamirisa said.

The comments followed an IMF staff mission to the UAE from September 16 to 30. In April, the IMF predicted that the Arab world’s second-biggest economy would grow 2 per cent this year and 3 per cent in 2019.

A rebound in oil prices to a four-year high has given the Government more revenues, prompting a stimulus package to bolster growth. Ahead of US sanctions against Iran, Opec’s third-largest producer, Brent crude oil prices rose to $83.27 per barrel yesterday.

On Sunday, the UAE Cabinet approved its largest federal budget yet, up by 17.3 per cent on last year. In mid-2018, global oil producers agreed to increase output, allowing the UAE to raise its production.

The UAE’s fiscal deficit is projected to turn into a surplus next year after remaining stable at 1.6 per cent of GDP this year, the IMF said. Its inflation rate is likely to reach 3.5 per cent because of the introduction of a 5 per cent VAT in January but is expected to ease thereafter, the Washington lender said.

In the medium term, with crude prices projected to soften, the IMF urged UAE authorities to return to gradual fiscal consolidation to help sustain petrol revenues.

“A return to the path of gradual fiscal consolidation would help save an adequate portion of the exhaustible oil income for future generations,” Ms Tamirisa said.

The country’s plans to liberalise foreign investment, introduce long-term visas for professionals and ease licensing requirements and business fees – once introduced – will be a “welcome step” in fostering the private sector, the IMF said. The fund called on the UAE to carry out deeper and broader reforms to increase the role of the private sector to boost economic growth and job creation.

Among the main reform priorities the fund suggested privatising non-strategic government-related enterprises and improving financing to small and medium enterprises.