UAE Non-Oil Growth to Rebound

Non-oil economic growth in the United Arab Emirates is set to rebound this year as austerity slows after a couple of years of tough belt-tightening due to low oil prices, a senior official of the International Monetary Fund said late Sunday.

Natalia Tamirisa, IMF mission chief to the Arab world’s second biggest economy, predicted non-oil gross domestic product—the key gauge for most businesses and consumers—would expand about 3.3% in 2017, up from 2.7% last year, Reuters reported.

The IMF expects headline GDP growth to slow to 1.3% from 3% because of a shrinking oil sector in Abu Dhabi, the biggest emirate, as the UAE cuts oil output in line with a supply agreement among global producers. A pick-up in global trade this year is expected to benefit the UAE.

Meanwhile, after the governments of the seven emirates tightened fiscal policy by about 9% of GDP on a consolidated basis in 2015 and a further 5% in 2016, they now have room to ease that process. “They plan to continue fiscal adjustment, at a gradual pace,” Tamirisa told Reuters after annual consultations with UAE officials.

Infrastructure spending for the country as a whole is set to grow more slowly in coming years and current state spending on goods and services will stay roughly constant in real terms, while the introduction of value-added tax next year will boost state revenues.

The result will be that the UAE effectively eliminates its fiscal deficit around 2022, Tamirisa said. The planned introduction of VAT in the six (Persian) Gulf Cooperation Council countries (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) next year will be an administrative and technical challenge for the region, which has traditionally had minimal taxation.

But Tamirisa said preparations in the UAE were proceeding well. “Our discussions were encouraging. They have clearly taken many measures. There are some remaining issues but we are optimistic that it will take place on schedule” on Jan. 1, she said.

Tamirisa also indicated that heavy infrastructure spending by the emirate of Dubai, which is preparing to host the Expo 2020 world’s fair, was unlikely to destabilize its finances. The debt of Dubai’s government plus government-related enterprises shrank to 112% of GDP last year from 126% in 2015.

While the government is expected to run a small deficit in coming years because of Expo 2020 preparations, this is unlikely to push debt up sharply again, Tamirisa said.