Fiscal deficit of 2020 to shift to surplus this year
The UAE economy is rebounding from its deepest downturn in decades as oil prices recover and the country’s accelerated vaccination policy has allowed a broad-based reopening of sectors.
In a report on MENA economies, the Institute of International Finance (IIF) said it expects the real GDP growth to pick up to 2.2 percent in 2021 and 4.9 percent in 2022.
In September the UAE Central Bank had forecast the economy will grow 2.1 percent this year and 4.2 percent in 2022.
“The recovery is supported by one of the highest vaccination rates in the world, recovery in oil production, rebound in tourism, activities related to the rescheduled Expo 2020 in Dubai, and the September strategic vision to stimulate the economy,” said Garbis Iradian, Chief Economist, IIF.
The UAE’s new strategy includes a series of new investments and measures to ease residency rules for expatriates. This is expected to boost its status, particularly Dubai, as a global hub for business, finance, and attractive tourist destination.
Consumer prices will remain broadly flat in 2021 as compared with a deflation of 2.1 percent in 2020, on the back of higher global commodity prices and the recovery in domestic demand, said Iradian.
Banks remain adequately capitalized with a 16.4 percent Tier 1 ratio, while the nonperforming loan ratio edged up to 8.2 percent in the second quarter of 2021. While the Central Bank’s loan deferral scheme will expire by end-2021, its zero-cost lending facility will continue to be used to provide new loans through mid-2022.
UAE’s current fiscal deficit of 7.1 percent of GDP in 2020, will shift to surpluses of around 1 percent in 2021 and 2022, “supported by the large increase in hydrocarbon revenues on the back of the surge in higher hydrocarbon due to higher oil and natural gas prices.”
The external position will remain very strong, with the persistent current account surplus widening to 7 percent of GDP in 2021 and 10 percent of GDP in 2022, according to IIF.
“We expect FDI inflows to increase further from $20 billion in 2020 to $22 billion in 2021… We expect gross public foreign assets (official reserves plus SWFs) of the UAE to increase to over one trillion dollars, 244 percent of GDP, in 2022.”
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