The IMF believes that growth in the UAE’s non-oil economy will slow next year, as the two biggest emirates in the federation – Abu Dhabi and Dubai – experience contrasting economic fortunes.
Yesterday, the fund released its latest assessment on the economies of the Middle East, North Africa and Pakistan.
Masood Ahmed, its regional director, said that overall growth in the UAE would fall to 2.3 per cent this year, down from 4 per cent last year, as the effect of lower oil prices worked through the wider economy. Next year he is expecting a slight recovery, to 2.5 per cent.
Growth in Dubai would fall slightly to 3.3 per cent this year, down from 3.5 per cent in 2015, before recovering to 3.6 per cent in 2016.
Abu Dhabi’s GDP growth would experience a “sharp decline,” he added, down from 4.3 per cent in 2015 to 1.5 per cent this year and 1.7 per cent next.
He said that the IMF would be “keeping an eye” on levels of indebtedness in the UAE economy, especially in Dubai where debt levels have remained relatively high since the global financial crisis of 2009.
The IMF’s most recent estimate of Dubai debt levels – in spring this year – estimated total public and private sector debt at about 70 per cent of GDP. This is comparatively high, but down from the peaks recorded seven years ago. A new assessment of Dubai debt levels is expected next spring, the IMF said.
But Mr Ahmed added: “I do not believe we are witnessing a return to the conditions of 2009. The numbers are better and management systems are much stronger. The regulatory framework, the governance of government-related enterprises and risk management have all improved significantly.”
He said that the rise in the oil price over the past year, as well as measures by GCC governments to reduce expenditure and raise revenue, meant the IMF’s estimate of total fiscal deficit over the next five years would fall from US$1.1 trillion to $765 billion.
“But that is still a big figure which needs to be managed. The oil pick-up eased some of the financial pressure but doesn’t really change the economic implications for oil exporters,” he added.
In a separate development, the ratings agency Fitch said that the effects of the oil decline would lead to an eventual deterioration of asset values among regional banks, and that some financial institutions were better placed to cope with this than others.
“Our base case is that GDP will continue to grow in 2017 and 2018 across all GCC countries and we forecast a gradual rise in oil prices to US$55 per barrel by 2018. Nevertheless, we examined the impact of lower for longer oil prices on asset quality across the region and concluded that loss-absorption capacity in the Saudi banking sector ranks highest among GCC countries and that both Saudi Arabia and Qatar would continue to offer the soundest lending opportunities under that scenario.”
Fitch added: “The operating environment is a positive ratings factor for banks in Saudi Arabia, Qatar and the UAE. In our view, business opportunities are strongest in Saudi Arabia and the UAE, reflecting the countries’ larger and more diversified economies.”
Follow The National’s Business section on Twitter