Mubasher: The International Monetary Fund (IMF) said that the persistent lower oil prices continued to weigh on the UAE’s economic sentiment as well as fiscal and external positions, according to a recent statement issued after the IMF’s executive board concluded the Article IV consultation 1 with the UAE on 20 July.
“Large buffers built over time have provided ample policy space, limited negative inward spillovers and contained the weakening of investor appetite,” the report said.
Non-oil economic activity in the UAE retreated to 3.7% in 2015, while negative effects on overall growth were partially trimmed by the rise in oil production.
The UAE’s fiscal balance turned to a deficit of 2.1% of gross domestic product (GDP), while the current account surplus shrank to 3.3% of GDP.
“Banks remained well capitalized and liquid, though pressures on profitability are emerging as asset quality weakens due to the economic slowdown and rising funding costs,” the IMF added.
The country’s economic activity is likely to moderate further in 2016, before improving over the medium term.
The IMF said that nonhydrocarbon growth is expected to slow down to 2.4% in 2016 due to fiscal consolidation, stronger dollar, and tighter monetary and financial conditions. Over the medium-term, this sector is forecast to enlarge to above 4% due to the effect of fiscal consolidation which is offset by improvements in economic sentiment and financial conditions as oil prices rise, a pickup in private investment in the run-up to the Expo 2020, and stronger external demand.
