São Paulo – The United Arab Emirates is expected to post a budget deficit this year, the first since 2009. The estimation is by the International Monetary Fund (IMF), which released this Thursday (4th) a report about the country’s economy. Despite the expected deficit of 2.3% of the Gross Domestic Product (GDP) and the drop in the current account surplus also expected for 2015, the Fund stated that the Emirates own large financial reserves, which were accumulated in the last few years with the earns from oil exploration.
And it’s because the drop of the commodity’s prices and revenues that the country now faces challenges. Another factor that impacts the bad economic environment, states the document, is the actual appreciation of the dollar against the dirham, although the American currency value exchange rate is set at one dollar for 3.65 dirhams.
According to the Fund, the Emirates will need to implement a “fiscal consolidation”, which will have to be gradual to not compromise the country’s growth. Thus, the government will have to preserve investments, control wage increases in the public sector, end subsidies, expand revenues in the non-oil sectors and reduce loans for the state-owned companies.
Despite the future challenges and the unfavorable economic conditions, the country is one of the most competitive in the Middle East and has room to implement other changes suggested by the Fund. Among them, job creation in the private sectors for its citizens, improve the business environment, expand access to micro and small businesses to funding and create incentives for entrepreneurship.
The expectation of the Fund’s technicians is for the GDP of the non-oil sector to grow 3.4% this year and inflation to reach 3.8%. Although real estate prices stabilized, rents went up, as well as imported products. The Fund delegation met with authorities of the United Arab Emirates from May 24th to June 4th.
*Translated by Sérgio Kakitani
