Efficient government spending is key to mitigate the economic fallout of Covid 19, Ministry of Finance says

Government activity still accounts for a large share of economic activity in the region

Younis Al Khoori, undersecretary at the Ministry of Finance. Reem Mohammed / The National

Efficient spending by the government is key to mitigate the economic fallout of the coronavirus pandemic, according to a top official from the Ministry of Finance.

“One of the most important lessons we have learned from the spread of the pandemic is the importance of re-prioritising public funds and relying on appropriate cost-modelling for operational expenditures of ministries,” Younis Haji Al Khoori, undersecretary at the Ministry of Finance said in a statement on Monday.

“Government activities still account for a large share of economic activity in the region, so disturbances to public spending, including government-related companies, will have severe economic impact on employment, trade, and capital flow, which will require a broader set of measures during the recovery phase.”

The world economy is expected to contract by 4.9 per cent this year due to a more severe economic fallout from the Covid-19 pandemic, the International Monetary Fund said last month.

For the Gulf region, the IMF expects a negative overall growth of 3.9 per cent, driven by Covid-19 and the decline in oil prices. The UAE is expected to see a 3.5 per cent contraction in GDP in 2020, the fund says.

The UAE has rolled out substantial financial stimulus packages to reduce the burden on the private sector.

The Central Bank of the UAE has undertaken Dh256 billion of stimulus measures to boost liquidity in the market and encourage banks to lend to businesses affected by the pandemic.

In addition, the UAE government extended stimulus packages worth Dh26.5bn to provide debt relief and reduce costs for companies and families. Individual emirates have also extended their own support measures.

Mr Al Khoury said measures can be taken to make sure government spending is being allocated to areas to help with the recovery.

“These measures include the acceleration of major capital projects with the postponement, or indeed cancellation, of others that are not necessary, or will support economic development in the medium term, especially projects that have not yet started," he said.

"We will also need to review residence laws due to the risk of a sudden decline in population and a rapid loss of a skilled workforce due to the temporary closure of businesses during the lockdown period.”