Fiscal policies cannot fix structural weakness, says UAE economist

DUBAI — While the global economy is showing signs of recovery, risks still remain regarding policy, says Dr Magda Kandil, chief economist and head of research at the Central Bank of the UAE.

“We have to remember just how long it took to recover from the financial crisis to reach this point,” she said at the Euromoney Emirates Conference in Sharjah. “One reason for how long the recovery has taken is due to private sector sentiment being badly shaken. We are barely seeing some semblance of what has been an extensive route of expansionary monetary and fiscal policies.”

This, she said, points to a structural weakness that policies alone cannot fix. “Before we start celebrating and taking a sigh of relief that the global economy has started to show some signs of recovery, we have to understand that the recovery is not uniform. The US, for example, has solidified its path of growth and recovery, but this has triggered a policy that could spill over risks to other parts of the world, including the UAE. This is because of the fact that there are economies in the GCC region that are pegged to the US dollar. Any depreciation in the US dollar will affect the economies that have their currencies pegged to it,” she noted.

Also, she added that emerging economies remain an engine of growth globally, but are at risk of further slowdown as capital flows to the US. In addition, they should also be cautious since the have a lot of debt that is denominated in US dollars.

“This could pose a problem for economies in the GCC and will trigger a need for policy makers in this economy to take the lead in packaging and designing policies to accommodate the situation. We need to look at reforms that address the structural bottlenecks in the labour market, as well as concerns that have led to the emergence of a populist sentiment in various parts of the world,” she stressed.