Arabian Post Staff
The IMF has praised the UAE authorities for reacting very quickly and swiftly in addressing the spreading of the coronavirus, and the pioneer measures in terms of controlling the spreading, increasing the number of testing, and introducing technology as a way and mean to address and to contain the spreading of the virus.
It pointed out that the UAE economy is the second largest economy in the GCC, one of the most international economies in the whole MENA region. And therefore, it was affected by the double whammy of the coronavirus shock and the drop in oil price.
This has helped the UAE to gradually open up their economy. Of course, this shock will have an impact on the oil sector that is important in UAE, and well as also on the non-oil sector, and we expect like other GCC countries that growth projections this year will be lower than the one we published last April.
Jihad Azour, Director, Middle East and Central Asia Department, and Athanasios Arvanitis, Deputy Director, Middle East and Central Asia Department, IMF said that the UAE was able to regain access to the market. They referred to the successful Eurobond transaction by Abu Dhabi a few weeks ago as well as the reorganization of the response level, with the government learning from the first lessons in order to provide a more efficient and effective way of addressing the COVID-19 shocks.
Of course, there are some risks to certain sectors that are exposed internationally, like tourism, like airline and transportation, those would require special attention.
Going forward, it’s important for the UAE economy, the investment that has been put in saving lives, expend the utilization of technology in addressing the virus, but also in providing new opportunities, and this is one of the silver linings that IMD sees with this crisis: to increase access to finance, to increase access to support to SMEs. The central bank has introduced and important package in this direction.
It’s important to keep in this direction, while also making sure that the stability of the financial system is protected. It’s also important to keep the transformation of the government-related entities to make them more competitive. And also, last but not the least, it’s important to think about the new diversification strategy that will allow the UAE to maintain its leading role in growing the non-oil sectors especially in the last decade we saw a fast-growing of various activities outside the oil industry.
Well, of course this shock has an impact on most of the GCC countries, although GCC countries have different level of buffers and access to liquidity, and therefore the way they have dealt with the crisis, and the way this crisis affected the economy is different.
The officials said they expect growth to be negative this year by 7.3 percent, and it’s both in the oil sectors as well as also in the non-oil sector. In terms of impact on budget deficit and external account, yes, those two sectors are the most affected. We expect deficits to reach levels of 8 to 10 percent on average this year. But the good news is the non-oil fiscal balance is showing more resiliency than the overall balance.
Of course, those countries were affected by the return on capital flows that we saw in the beginning of the crisis, but they regained access to international capital markets and they were able to finance at relatively acceptable rates with ample demand their financing need for this year.
Also published on Medium.