UAE HAS BETTER SHOCK ABSORPTION CAPACITY
The country can shield its economy better than many of its global peers
Relatively greater levels of economic diversification and robust sovereign assets will better shield the UAE economy compared to its GCC peers if the low oil prices persist over a longer period, according to rating agency Moody’s. Lower-forlonger oil prices will weaken the fiscal and external positions of all rated oil exporters, exacerbating sovereign credit pressures as lower oil demand persists for several years following the coronavirus pandemic, rating agency Moody’s said in a report. Among the higher rated GCC sovereigns, the negative credit pressures will be most pronounced in Kuwait and Saudi Arabia. By contrast, the rating agency said the UAE has stronger shock absorption capacity. The UAE, according to Moody’s has a relatively lower reliance on hydrocarbons compared to many oil producing peers.
The world is facing an unprecedented health crisis that has triggered a global economic downturn, rupturing supply chains and crippling financial markets. As economies around the globe grapple with a multi-dimensional crisis, the GCC countries including the UAE are witnessing a sharp contraction of economic growth. While the Covid-19 pandemic affects GCC countries, a plunge in global oil prices in recent months has compounded stress on these economies, increasing challenges to combating the virus and preventing lasting damage to respective economies.
The latest forecasts from the World Bank says the GCC’s real GDP growth could contract as much as 4.1 per cent this year before bouncing back to 2.1 per cent in 2021. Forecasts by various agencies such as the IMF, World Bank, Institute of International Finance and leading credit rating agencies see a sharp short-term dip in the UAE’s economic growth this year followed by a gradual, yet a steady recovery form 2021.
The UAE, one of the most open economies in the region, has historically been susceptible to global economic events. However, after every major global or regional crisis the country has always managed to pull itself back to a growth trajectory that is stronger than before.
The post-Covid-19 era too will be marked by the strong rebound of the UAE economy, thanks to the wide range of government support, strong fundamentals, substantial financial reserves and the entrepreneurial spirit of the nation.
Even before Covid-19 was declared a global pandemic, the UAE began implementing a string of pre-emptive measures that included fiscal support through reduced government fees and or waivers of various government charges including rent reliefs and reduced power tariffs.
Massive monetary policy support by the Central Bank of UAE through its Dh256 billion Targeted Economic Support Scheme (TESS) has come as a great relief to individuals and businesses in the form of loan interest deferrals to tide over the financial difficulties caused by Covid-19 related temporary shut downs.
While the economic recovery could be a slow process across the world and in the GCC, the UAE’s greater levels of economic diversification and robust sovereign assets, for sure will better shield its economy compared to many of its global and regional peers.