The IMF has doubled its UAE growth forecast for this year but warned that Dubai World's debt problems may yet affect economies in the region. The economy is expected to expand by 1.3 per cent instead of the IMF's earlier forecast of 0.6 per cent, the Washington-based institution said in its World Economic Outlook released yesterday. The country's economic growth shrank by 0.7 per cent last year, the IMF added.
Painting a more upbeat global outlook than in earlier forecasts, the IMF said the world economy would grow faster than the expected 4.2 per cent this year. The recovery in many advanced economies, however, remained "tepid", with high government debt levels needing to be addressed, it said. Countries in the MENA region were recovering at a good speed with projected growth of 4.5 per cent, the IMF said.
The pace of recovery in advanced economies and the impact from Dubai World's debt proposals were key risks clouding the economic outlook. While the economic effects of the Dubai Government-controlled Dubai World's debt restructuring plans had so far been limited, the IMF warned the complete impact of the situation may not be felt for some time. "In particular, a possible re-pricing of quasi sovereign debt could have a lasting effect on financial systems, corporate sectors, and more generally, economic activity in the area," the fund said.
The conglomerate is still waiting for creditors to approve proposals announced last month on the restructuring of the company and its property unit Nakheel. The plans involve the Dubai Government providing as much as US$9.5 billion (Dh34.89bn) for the company, with creditors extending their maturities by five to eight years. Dubai World offered to repay in full the holders of the Islamic debt issued by Nakheel as the sukuk fall due. It had announced in November that it planned to restructure its debts.
A vulnerable financial sector and weak property markets were holding the economy back, said the IMF, citing the same factors as a drag on Kuwait's growth prospects. Property-related sectors in the Emirates were expected to contract further, it said. The slowdown in construction and the tightening of bank credit has led to a contraction in the country's property market. The oversupply of properties is hampering recovery in Dubai's housing market, analysts said.
Elsewhere in the Gulf, Qatar will be the strongest performer in the region this year with GDP growth forecast to reach 18.5 per cent due to further expansion of natural gas production and infrastructure spending by the government. Saudi Arabia, the Gulf's biggest economy, is forecast to grow by 3.7 per cent this year, with fiscal spending remaining the main driver of expansion. It follows marginal growth of 0.15 per cent last year.
"Government investment programmes, especially in infrastructure, will continue to boost domestic demand in the near term in many MENA economies," the IMF said. "These measures should remain in place to help cement the recovery." Higher energy prices were leading a resurgence in the oil and gas-exporting countries, the IMF said. Despite assistance, banks in the region had become more cautious about lending after recent episodes of financial sector distress amid sharp corrections in property markets.
"This will likely curb the availability of bank loans and, ultimately, credit growth," it said. Through their pegs to the US dollar, the monetary policies of Gulf economies such as the UAE, Saudi Arabia, Qatar, Oman and Bahrain were appropriately stimulative, the IMF said. The economic outlook was published prior to the gathering of global policymakers in Washington for the IMF's spring meetings starting Saturday. Among the subjects on the agenda are how to sustain the recovery from the economic crisis and the IMF's recent report on financial stability.
Younis al Khoori, the director general of the Ministry of Finance, will head the UAE delegation, which will meet with Robert Zoellick, the president of the World Bank, to discuss topics including increasing the voting power of Arab countries within the World Bank and how to increase the capital of the World Bank. tarnold@thenational.ae