Financial surpluses will protect UAE from oil plunge
The UAE’s huge financial surpluses and foreign currency reserves will protect the economy from external oil price shocks, the Minister of Economy said.
He made the comments as the price of crude oil plunged below US$60 a barrel for the first time in five years.
“The UAE economy is capable of overcoming negative repercussions, which are unfavourable to the global economy, [and] absorb shocks in the short term,” said Sultan Al Mansouri at a conference in Dubai.
He added that the UAE could “overcome the steep decline in oil prices due to the economic diversification that the country is following and the continued growth of the non-oil sectors, which grants it immunity against all foreign swings.
“In addition, the country has a significant stock of foreign assets and huge financial surpluses that act as a safeguard against foreign shocks,” Mr Al Mansouri said.
Growth this year is forecast to reach 4.3 per cent, he added.
The UAE economy is expected to be worth Dh1.55 trillion this year, and expand next year to reach Dh1.62tn, he said.
Brent has dropped by about 48 per cent to less than $60 a barrel from $115 a barrel reached in June owing to a supply glut and poor economic growth in Europe and parts of Asia.
Oil prices took a deeper plunge after Opec, which pumps more than a third of the world’s oil, last month decided to keep its output unchanged at 30 million barrels per day (bpd), despite the oversupply.
“The country’s financial surpluses, which the country amassed due to oil price increases over the past years, will support the Government in the coming years in its general expenditure on development projects that are in the budget,’’ said the Minister. “In addition, the UAE is considered the least oil-dependent in its budget among all Gulf states, which will allow the country to be more capable to continue in its government spending on its projects over the coming years without any mentionable effect.”
The UAE has significant foreign currency reserves with the Abu Dhabi Investment Authority, the country’s largest sovereign wealth fund.
Economists expect the UAE, along with Saudi Arabia, Kuwait and Qatar to weather the oil price slump thanks to their reserves. They also have high credit ratings that will allow them to borrow relatively cheaply from international markets to cover any potential fiscal deficit.
The minister added that economic diversification was bearing fruit thanks to the development of value-added industries and continued spending on infrastructure and services such as education and health, which were important to fostering demand.
“Our national agenda is a road map for various federal authorities to aid the country to achieve a real growth rate of 5 per cent per year in the non-oil sector, achieve advanced rankings among countries in terms of per capita GDP, and achieve foreign investment flows that are equal to 5 per cent of the GDP,” he said.
Inflation in the UAE is expected to reach 2.2 per cent this year, and rise to 2.5 per cent next year owing to a stronger dollar, the minister said. The UAE’s currency is pegged to the greenback, which is gaining ground against other currencies.
Mr Al Mansouri also forecast an increase in exports to Dh1.59tn next year from Dh1.47tn this year.
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Published: December 16, 2014 04:00 AM