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IMF Has Confidence in UAE Recovery in Spite of Regional Events

UAE : 10 March 2011

Suggestion was made to replace power and water subsidies with enticement of cash.

The UAE economy is recovering strongly thanks to a favourable global economic climate, although it is still subject to rising uncertainties in the region, according to recent IMF (International Monetary Fund) statements.

Head of a delegation from the IMF, Taline Koranchelian made a statement that there are risks still present within the UAE`s recovery, such as the potential economic reaction to unrest in the area. Koranchelian spoke after meeting with officials from the UAE: Economy Minister Sultan Bin Saeed Al Mansouri; the State for Financial Affairs Minister Obaid Humaid Al Tayer; and Central Bank governor Sultan Bin Nasser Al Suwaidi.

Koranchelian added that the repricing that is taking place within the sovereignty and politics of the region may result in certain market challenges, as well as putting pressure on the area`s corporations and GRE`s (government related enterprise). The excessive amount and uncertain quantity of Dubai property continues to put pressures on economic growth.

Even though growth is forecasted to be stable at 3.25 percent this year, Koranchelian commented that non oil GDP is set to swell from the 2 percent growth seen in 2010 to growth of 3.25 percent for this year due to stronger trade, logistics and tourism in Dubai, as well as higher public investments in Abu Dhabi.

Even though food prices have risen across the globe, the consumer price index (or CPI)  inflation is forecasted to remain at only 4 percent due to falling rent prices. Climbing prices for oil are responsible for noticeable improvements in the fiscal positions, balances and payments according to the IMF.

Analysts note that since the residents are well looked after by the UAE government, the volatile conditions in the region could have little effect.

An anonymous economist out of the UAE noted that no effects have been seen in the UAE because the population is taking advantage of opportunities that have arisen through the sensible macro-economic policies of the government. Unemployment is not seen as an issue and the majority of UAE nationals are well taken care of, according to the economist.

Koranchelian stated that the recovery in the UAE`s economy is getting stronger and is held up by favourable conditions in the global economy. Regional uncertainties could still be a factor, however. The current government plans involving infrastructure upgrades within the northern emirates is seen as a step forward in creating an inclusive economy.

The IMF also suggested that the electrical and water subsidies be replaced by cash incentives to households with lower incomes.

Discussing the intentions of the government to be active in putting new labour policies into effect for job creation, Koranchelian said that putting programmes in place in those northern regions where there is concentrated unemployment, as well as the relocation of certain government agencies and departments into the north of the UAE, is an important step.

She said that the banking industry is tough and higher capital and strong earnings make it more difficult to shock.

Good progress has been made within the Central Bank, where the financial stability analysis is stronger, the framework of regulations is being revamped and macroprudential policies are being developed.

This will ensure that the banking sector is continuing to be provisioned well, especially when taking into account the rising provision needs of GREs in Dubai. The banks need to keep an eye on how restructured loans are performing as well as encourage institutions to hold onto earnings as a safeguard against medium term potential risks, said Koranchelian.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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