The IMF has confirmed its forecast for a sharp slowdown in economic growth in the UAE this year and called for further government spending cuts to deal with the adjustment to a lower oil revenue future.
The IMF executive board report, which is the culmination of its annual review of the UAE economy, confirmed its spring forecast for non-oil economy growth this year of 2.4 per cent, down from a lowered estimate for last year’s growth of 3.7 per cent.
“Economic activity is expected to moderate further in 2016, before improving over the medium term,” said the report from the IMF’s 24-member board, which is chaired by its managing director Christine Lagarde.
“Over the medium term,” the report continued, “non-hydrocarbon growth is forecast to increase to above 4 per cent as the dampening effect of fiscal consolidation is offset by improvements in economic sentiment and financial conditions as oil prices rise, a pickup in private investment in the run-up to the Expo 2020, and stronger external demand.”
The IMF has downgraded its forecast for UAE economic growth twice since the end of last year as oil prices continued to decline early in the year, with a cut from 2.6 per cent to 2.4 per cent in the spring when it reviewed its Middle East forecasts.
The IMF has praised the UAE for the measures it has taken to curb government spending and reform the economy to diversify further away from oil and spur business formation. But the latest report called for the Federal Government to take further steps to control costs.
“Stronger fiscal consolidation will be needed over the medium term to ensure intergenerational equity,” as the IMF put it.
Specifically, the IMF urged the Government to cut remaining energy subsidies.
The UAE last year effectively removed subsidies on petrol and diesel after previously reducing subsidies on electricity and water.
Among the various other recommendations about further developing domestic institutions, such as the Central Bank, were calls for further help for small businesses.
“Priority should be given to upgrading the quality of education, promoting innovation and entrepreneurship, and facilitating [small and medium-sized enterprises] and start-ups’ access to finance, notably through an approval of the bankruptcy law and further broadening the credit bureau’s coverage,” the IMF urged.
On Tuesday, in an interim review of world economic growth following the vote by the United Kingdom to exit the European Union, the IMF downgraded its forecast by 0.1 percentage points for this year and next to 3.1 per cent and 3.4 per cent, respectively.
amcauley@thenational.ae
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