São Paulo – Last Wednesday (14th), the International Monetary Fund (IMF) issued the conclusions of a delegation which scrutinized the accounts of the United Arab Emirates. In their report, the technicians claim that the world crisis is likely to lower the demand for oil, making it difficult for government-related enterprises to roll over their debt. According to the IMF survey, the Emirati GDP increased by 4.9% in 2011 and should reach 2.3% this year. The non-oil sector grew by approximately 2.7% last year, driven by trade, industry and tourism.
Not even the good performance of the Emirati economy in 2011 was enough to ease the IMF’s concerns over the country’s accounts this year. The Fund forecasts that oil prices, a major source of revenues for the Emirates, should drop because the economic crisis in wealthy countries will cause a decline in demand for the product.
“The current uncertain global economic and financial environment poses a number of risks to this outlook. The weak growth prospects in the advanced economies could lead to a pronounced decline in oil prices if regional geopolitical risks subside. Moreover, renewed concern over the worsening of global financing conditions could make it more difficult to roll over some of the government-related entities’ maturing external debt and affect liquidity conditions in the [Emirati] banking system,” warns the IMF report.
The IMF claims that government-related companies are still dependent on foreign funding. The government, according to the survey, has already set the accounts of some of these companies in order, but many others are still in the middle of restructuring processes. The IMF believes the financial health of these companies poses a threat to the accounts of the Emirates, because they depend on foreign financing.
On the other hand, the IMF acknowledged that local authorities are committed to promoting a gradual fiscal consolidation in the accounts and reducing public spending, which was increased to help the country through the 2008 crisis. “The planned gradual pace of fiscal tightening will strengthen public finances without undermining the economic recovery,” according to the document. The delegation of technicians also recognize that the banking system is well capitalized and there is liquidity in the market, though they fear many of the banks’ loans are destined to government companies in adverse financial situations.
*Translated by Gabriel Pomerancblum
