- Sees economy growing 2.5 percent in 2016, down from 3 percent
- Oil, tighter liquidity and regional instability also factors
The International Monetary Fund lowered its forecast for growth in the United Arab Emirates to 2.5 percent this year from 3 percent, with weakening investor confidence and a further drop in oil prices since October contributing to the revision.
"We expect a slowdown -- not a contraction -- but a slowdown of growth," Zeine Zeidane, the IMF’s mission chief to the U.A.E., said in an interview in Dubai on Thursday. The U.A.E.’s purchasing managers’ index dropped in December, while regional instability may be weighing on investor confidence, he said. The recent tightening of liquidity in the banking sector “will have an effect overall and slow down credit growth," he said.
The Arab world’s second-largest economy scrapped transport fuel subsidies in August and is considering value-added and companies taxes as it adapts to a period of lower oil revenue -- measures recommended by the IMF. Abu Dhabi, the richest emirate in the seven-member federation, increased water and electricity tariffs by 170 percent and 40 percent respectively.
The IMF still recommends gradual spending cuts, but with lower oil prices, "the pace needs to be a bit faster than what we were recommending" last year, he said. The government shouldn’t cut capital spending and projects that are "efficient and productive."
Growth will improve in 2017 as oil prices recover, and as the economy benefits from the lifting of sanctions on Iran and construction for the Expo in 2020 in Dubai, Zeidane said. The U.A.E. remains in a “strong position” with assets providing a fiscal buffer, he said.
The IMF’s next consultation meeting with U.A.E. officials is scheduled for April.