IMF commends UAE’s successful efforts to address the effects of COVID-19
UAE - The International Monetary Fund (IMF) has commended the UAE on its successful vaccination programme and said economic recovery in the country is gaining momentum with the help of the government’s supportive measures by quickly addressing the effects of the Covid-19 pandemic.
After the conclusion of its executive board’s consultations with the UAE authorities, the fund projected a faster real GDP growth rate of 3.5 per cent for 2022 as compared to 2.2 per cent for 2021, purely driven by the non-oil sector which will grow at 3.4 per cent this year.
“The economic recovery is gaining momentum, supported by the UAE’s early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020. Overall GDP growth is projected at 2.2 per cent in 2021, driven by non-oil growth of 3.2 per cent. Real oil GDP growth is expected to be close to zero this year in line with the Opec+ agreement,” IMF said in the country review.
Over the medium-term, the IMF sees growth accelerating with the benefit of structural reform efforts, increased foreign investment, and rising oil production. “Fiscal and macro-financial support have provided relief to hard-hit sectors, SMEs, those in need, and the financial system over the past year and a half, and some measures have been extended,” it added.
To support the UAE economy, the federal government, Central Bank and local emirates pumped billions of dirhams in the first two years to support large corporates and small and medium businesses to offset the impact of the pandemic.
The UAE provided Dh388 billion worth of stimulus package to support the economy including Dh50 billion provided to boost liquidity in the banking sector to lend support to the private sector amidst credit crunch after the pandemic.
As compared to IMF’s projection of 3.5 per cent real GDP growth for 2022, the UAE Central Bank earlier forecast 4.2 per cent expansion of the economy while Japan’s largest bank MUFG predicted 4.9 per cent growth in 2022.
IMF projected that the overall fiscal deficit will narrow to 0.7 per cent of GDP in 2021 and shift into a small surplus by 2024.
The fund’s executive directors commended the authorities on a “successful vaccination programme and prompt policy response to combat the effects of the pandemic and welcomed the economic recovery underway”.
More than 95 per cent of eligible residents in the UAE are fully vaccinated against Covid-19, while 100 per cent have received at least one dose.
Current account surplus
IMF executive directors noted that higher oil prices will also benefit the UAE’s current account balance, which is projected to increase to 10 per cent of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5 per cent of GDP in the medium-term.
Oil prices have been consistently rising over the past few months, especially after the Ukraine-Russian tension. On Friday, Brent and WTI were trading at $91.1 and $89.53 per barrel, respectively.
The IMF also pointed out that the UAE’s banking sector remains adequately capitalised but it called for continued monitoring of financial stability risks and digitalisation challenges. The IMF’s directors also welcomed the progress made with the anti-money laundering and counter finance terrorism (AML/CFT) framework and encouraged the authorities to sustain the reform momentum.
The fund also sees a massive jump in inflation from 0.6 per cent last year to 2.2 per cent this year.
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