The UAE will proceed with infrastructure investment despite the fall in oil prices, said the Minister of Economy, Sultan Al Mansouri.
“When it comes to infrastructure such as hospitals, schools, roads, wherever that is needed, we have the capacity to finance it,” he said yesterday. “None of that is going to be affected in the next four to five years.”
The collapse in oil prices late last year led the IMF to urge Arabian Gulf states to cut public spending "over the medium term", as the UAE prepares this year for its first budget deficit since the global financial crisis in 2008.
The IMF forecasts the UAE’s looming fiscal shortfall to be equal to 2.3 per cent of GDP this year before balancing its books next year.
The UAE would plug the gap between spending and revenue by drawing down on its financial reserves, said Mr Al Mansouri.
The country’s infrastructure plans would not be affected by the decline in oil prices “simply because the UAE has created a large and substantial reserve over the years”, he said. “We have managed our budget over the years in a very effective way.”
Investment in airport infrastructure, in particular, will continue to grow rapidly, as Dubai International Airport attempts to become the world’s largest. “We have to meet the increase in demand. This is where the expansion of airports and building new ones is part of the agenda,” said the minister.
The UAE has invested heavily in infrastructure as part of its Vision 2021 plan to diversify the economy from its reliance on hydrocarbons.
The World Bank estimates that Arabian Gulf states will invest US$500 billion on new infrastructure by 2020.
The UAE has financial reserves equivalent to about 275 per cent of GDP in the form of the Central Bank's foreign-exchange holdings and assets owned by its sovereign wealth funds. Analysts believe that the reserves should be enough to sustain current spending levels for decades to come.
Infrastructure spending will be increasingly important for future economic growth, especially for the development of high-tech and knowledge-based industries, said Bruno Lanvin, an Insead academic and co-author of the World Bank’s global innovation index report.
Major infrastructure projects help to diversify the economy by indirectly encouraging new industries. “There are things you can do in countries with good infrastructure that you just cannot do anywhere else,” said Mr Lanvin.
The results of the UAE’s infrastructure spending “can be measured in terms of the ability of the UAE to participate in flows of goods, services and people”, he said.
“Dubai has emerged as a hub even when 20 years ago people thought they couldn’t.”
The quality of the infrastructure in the UAE ranks at number three in the world, behind Hong Kong and Singapore, according to the World Economic Forum’s annual global competitiveness report.
Zeine Zeidane, the IMF’s mission chief in the UAE, said last week that although “the UAE had benefited from building up large external and fiscal buffers over the years, thanks to its hydrocarbon wealth”, now was the time to press ahead with budget cuts over the medium term.
The IMF had previously pointed to energy subsidies and public sector wages as areas to cut, while urging the UAE to continue its capital expenditure.
abouyamourn@thenational.ae
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