UAE economic growth is expected to strengthen over the next few years on higher oil prices and increased government spending, the International Monetary Fund (IMF) have declared in a statement following the latest Article IV consultation.
Good news for the UAE continued with the IMF team observing that whilst the UAE needs more fiscal easing in the near term to address matters once the recovery gains momentum the country could return to a path of gradual and growth-friendly fiscal consolidation.
The UAE’s inflation is projected at 3.5 per cent this year owing to the introduction of the value-added tax and should ease afterwards. The fiscal deficit is expected to remain stable at about 1.6 per cent of GDP this year and turn to a surplus next year.
Fiscal buffers, ample spare capacity, and rising investment for Expo 2020 has meant the the government has appropriately switched to providing stimulus to the economy. Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity will no doubt augment growth.
Projections over the medium term show oil prices softening and a return to the path of gradual fiscal consolidation which would help save an adequate portion of the exhaustible oil income for future generations. Continued improvements in spending efficiency and strengthening non-oil revenue, including by gradually replacing a system of numerous and regressive fees with corporate taxation, would help achieve these goals.
The UAE’s recently announced plans to liberalise foreign investment, introduce long-term visas for professionals, and ease licensing requirements and business fees is of course welcome news. We can expect in the future reforms relating to promoting competition, privatising non-strategic government-related enterprises (GREs), and improving SME access to finance.