São Paulo – The United Arab Emirates economy may now be at a “turning point,” according to preliminary findings published this Thursday (2) by the International Monetary Fund (IMF) after a visit from the staff team to the country. “Some green shoots are now emerging, with domestic credit growth, employment, and tourist arrivals showing improvement recently, though the real estate sector continues to face an overhang of supply,” says Koshy Mathai, who led the mission.
According to the IMF, the UAE economy may now be at a turning point, supported by domestic factors such as a substantial public spending for Expo 2020 and new investments plans from government-related entities (GREs), as well as by external tailwinds, including higher oil prices.” Against this background, growth could exceed 2% this year and approach 3% in 2020-21,” said Mathai.
The team says the economy went through adjustments last years, with the reforms-including in government entities and commercial banks-as well as the fiscal position weighed on aggregate demand. The dirham appreciated against currencies of major trading partners and interest rates rose in general, according to IMF. All this occurred against the backdrop of weaker external demand, and geopolitical tensions.
IMF says that the UAE economy has gone a long way toward diversification, but government spending and some sectors are still affected by oil price fluctuations. “Sustaining strong growth after Expo 2020 and the fiscal stimulus will require capitalizing on new growth drivers that are decoupled from oil prices, and this in turn will require the authorities to build on their ongoing structural reform momentum,” said Mathai.
IMF pointed some key areas of focus for the Arab country to keep growing, such as reducing the footprint of the public sector, modernizing the labor market, strengthening the financial markets, and fostering policy coordination and transparency. The IMF mission met several local authorities, the Central Bank, the Ministry of Finances, Abu Dhabi Department of Finances, and others, along with other senior officials and private sector representatives.
Translated by Guilherme Miranda
