The UAE’s economy is recovering, with non-oil growth expected to pick up to around 3 percent next year, according to a report from the International Monetary Fund (IMF).
In 2019, non-oil growth could exceed 1 percent. The forecasted growth for 2020 would be the fastest since 2016, bolstered by Expo 2020 and fiscal stimulus.
Overall GDP growth would register 2.5 percent in 2020, according to the IMF.
“Sustaining robust non-oil growth after Expo 2020 remains a key priority, made all the more pressing over the longer term by the likelihood that global oil demand will slow in the face of technological advances as well as policy responses to climate change,” said Koshy Mathai, who led an IMF team in the UAE between October 22 and November 5.
Given this context, the IMF team in the UAE met with local authorities to discuss ways to promote the growth of the non-oil private sector, including SMES, and strengthening fiscal frameworks to ensure both sufficient saving of oil wealth for future generations and short-term fluctuations.
“In the first area, the authorities have already taken a number of important steps, including adopting a foreign direct investment (FDI) law allowing 100 percent foreign ownership in selected sectors, and reducing or eliminating fees and penalties,” Mathai said.
Additionally, Mathai said that the IMF welcomes the steps the UAE is taking to implement a comprehensive SME strategy, which includes lowering start-up costs and promoting greater financial inclusion.
The IMF has recommended the establishment of a single agency responsible for SME promotion, with any possible costs to the budget recorded transparently.
“Further strengthening and developing the financial sector should support private-sector development while mitigating risk,” Mathai said. “Real-estate and construction exposures should continue to be under prudential control [and] noncompliant large exposures brought down to below prudential limits.”
Mathai added that “all these measures should be complemented by broader reform efforts.”
‘In particular, reducing the footprint of government-related entities (GREs) in nonstrategic sectors will promote competition and enhance private sector growth,” he added. “In addition, …incentives for private employment should be strengthened and public-sector compensation and benefits addressed.”
With regards to fiscal policy, the IMF has called for a fiscal framework that enshrines a commitment to savings, although it noted that the given current economic conditions, the authorities’ existing stimulus efforts are appropriate.
“Developing transparent, rules-based fiscal frameworks can help ensure a balancing of objectives, and the mission welcomes the steps taken to enhance monetary and fiscal coordination,” Mathai said.