UAE's GDP to grow 2.1% this year on higher spending, Moody's says

Higher oil prices will help narrow the UAE’s fiscal deficit to 0.8 per cent from 2.3 per cent of GDP in 2017

The Burj Khalifa tower, center, stands among city skyscrapers and the Address Sky View, right, under construction by developers Emaar Properties PJSC, in Dubai, United Arab Emirates, on Wednesday, April 11, 2018. Transformed into a flamboyant city state from an impoverished Gulf port in less than 50 years, Dubai defied geology to build skyscrapers and elaborately shaped islands in the sea. Photographer: Christopher Pike/Bloomberg
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The UAE’s economy will grow 2.1 per cent this year and 3.9 per cent next year as non-oil growth rebounds on higher government spending, particularly in Dubai, according to Moody’s Investors Service.

“Despite the UAE's relatively high exposure to hydrocarbons, the oil price drop did not dramatically alter the economy's medium-term real growth trajectory,” the rating agency said in a report on Monday.

Moody’s economic forecast is almost in line with the International Monetary Fund’s projections that put growth at 2 per cent for 2018 and 3.6 per cent next year.

Oil gross domestic product (GDP) will not grow this year due to the UAE’s compliance as an Opec member with global oil output curbs that are in place till the end of this year, according to the IMF.

Fiscal consolidation in Abu Dhabi and higher oil prices, which touched $80 a barrel last week, will help narrow the UAE’s fiscal deficit to 0.8 per cent from 2.3 per cent of GDP in 2017, Moody’s said.


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“The UAE's consolidated fiscal position shows a diverging path between Abu Dhabi, where broad spending cuts were enacted, and Dubai, which has continued to increase spending ahead of the World Expo 2020,” said the rating agency.

The crash in oil prices which set in three years ago contributed to a fiscal gaps, however, "the large stock of financial assets means that the government can easily finance its deficits without resorting to debt issuance.”

The IMF, however, is projecting a fiscal surplus of 0.5 per cent of GDP this year because of higher-than-expected oil prices offsetting the uptick in government spending.

Moody’s said the UAE’s stable Aa2 rating is supported by the financial backing of Abu Dhabi, large hydrocarbon reserves and high wealth levels.

"The UAE's superior infrastructure, very high per capita income and vast hydrocarbon reserves support its creditworthiness," said Thaddeus Best, a Moody’s analyst. "These strengths are balanced against challenges which include limited institutional transparency and the absence of public data around offshore assets and some of the emirates' public finances."