Fiscal stimulus, Expo Dubai preparations to further accelerate econominc momentum
Non-oil growth in the UAE will expand further in 2019 and 2020 on the back of fiscal stimulus and fast-track preparations for Expo 2020 Dubai, and the momentum is also expected to strengthen further in the coming years, the International Monetary Fund said in its latest note.
The global financial institution has predicted that the non-oil sector will grow faster in 2019 than the oil sector despite some recovery in crude prices.
"Non-oil growth is projected to rise to 3.9 per cent in 2019 and 4.2 per cent in 2020. The oil sector's prospects have also improved with higher oil prices and output. Overall real GDP growth is projected at around 3.7 per cent for 2019-20," the IMF said on Saturday.
"The contribution from the private sector is projected to rise owing to, among other things, the recently-announced reforms, continued recovery in private sector credit growth, and stronger consumption growth," Hazem Beblawi, the IMF's executive director for the UAE, said in the note.
Following the slowdown in 2015-16 due to a decline in crude prices, the UAE economy is recovering and "growth momentum is expected to strengthen in the next few years with increased investment and private sector credit, improved prospects in trading partners, and a boost to tourism from Expo 2020", it added.
The Abu Dhabi government announced a Dh50 billion stimulus package in May 2018 to support its economic development with an aim to accelerate the economy over the next three years. This augments the Dubai government's planned investment of $6 billion for Expo 2020 in 2018-20, mainly for airport and Metro expansions and site developments.
"As private sector activity picks up and stimulus measures are phased out, fiscal consolidation is expected to resume, to ensure sufficient saving of oil wealth for future generations. The overall fiscal balance is projected to turn to a surplus next year on higher oil prices and remain positive over the medium term," IMF analysts said.
Sultan bin Saeed Al Mansouri, UAE Minister of Economy, said at an aviation summit recently that he expected the economy to expand 3 per cent in 2018 despite headwinds in the global economy, trade war concerns and volatility in oil prices.
"Growth should be around 3 per cent [for 2018]. It is positive considering we see a lot of challenges in the global economy with all the protectionism. The fluctuation in oil prices did have an effect but [only] to a certain extent and, because the UAE is a diversified economy and oil contributes roughly about 30 per cent of GDP, the effect of oil was minimum," Al Mansouri said while addressing a forum in Dubai last week.
Atik Munshi, senior partner at Crowe, said non-oil sectors will mainly boost the UAE economy for 2019.
"We are on the threshold of Expo 2020, which provides the positive sentiment to the market. Rents and other overheads of doing business in the UAE have come done in these last few years, which will help businesses perform better if market size is sustained. 2018 has been a tough year for most businesses in the UAE, though 2019 is expected to be better," Munshi added.
He said getting better credit facilities from banks for small and medium enterprises sector is one factor that will still pose a challenge in 2019. "Market-size enhancement could be the other challenge faced by the economy."
The IMF said the UAE's real GDP will grow 2.9 per cent for 2018 and 3.7 per cent for this year. It predicted real oil GDP to grow 3.1 per cent in 2019 while real non-oil GDP will expand 3.9 per cent.
It foresees GDP growing from $432.6 billion in 2018 to $455.5 billion this year and $475 billion in 2020. It predicts a shortfall of Dh26.1 billion for 2018 with revenues at Dh448.5 billion and expenditures at $474.6 billion. It sees a Dh30.5 billion surplus for 2019 with revenues at Dh528.8 billion and expenditures at Dh498.3 billion. For 2020, it predicts revenues at Dh515.1 billion and expenditures at Dh510.7 billion.
For the UAE, it forecasts an average crude export price of $72.3 per barrel in 2019 compared to $71.9 last year.
IMF analysts commended UAE authorities for introducing value-added tax and stepping up structural reforms, plus the upgrading of its prudential framework.
Analysts stressed on the importance of increasing supervisory vigilance and strengthening management of contingent liabilities from borrowing by government-related enterprises, government guarantees and public-private partnerships.
Notwithstanding the UAE's already high rankings on business environment indicators, IMF analysts called for further reduction in the costs of starting, expanding and closing a business - especially for SMEs - in order to boost private sector development.
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