Dubai
The UAE has continued to benefit from its perceived safe-haven status amid regional instability. The economic recovery has been solid, supported by the tourism and hospitality sectors, and a rebounding real estate sector, the Executive Board of the International Monetary Fund (IMF) said on Thursday in its statement on Article IV consultation with the UAE.
“While growth in oil production moderated, public projects in Abu Dhabi and buoyant growth in Dubai’s service sectors continued to underpin growth, which reached 5.2 per cent in 2013. The real estate sector has been recovering quickly in some segments, especially in the Dubai residential market,” said a statement from the IMF.
The Fund observed that the macroeconomic outlook is positive. Economic growth is expected at 4.8 per cent in 2014 and about 4.5 per cent in coming years, supported by a number of megaprojects announced over the past 18 months and the successful bid for the World Expo 2020.
Inflation is projected to increase, driven by higher rents. The strengthening real estate cycle, particularly in the Dubai residential market, could attract increased speculative demand, creating the risk of unsustainable price dynamics and an eventual, potentially disruptive correction.
The executive directors of the IMF agreed that Dubai has made significant progress managing financial obligations from the 2008 - 9 crisis. The major debt restructurings from that crisis have been completed, and $20 billion in Dubai government debt to the central bank and Abu Dhabi was rolled over at reduced interest rates.
The IMF directors welcomed the recent progress in restructuring the debt of Dubai’s government-related entities (GREs), and stressed the need for continued strengthening of the GRE sector. They cautioned that continuous and close oversight of GREs will be essential to ascertain that projects are executed in line with expected demand, and to avoid further risk taking.
The Fund officials took note of the ample liquidity and capital buffers in the banking sector, and encouraged the authorities to continue to focus on financial soundness on the back of a strong cyclical position and accelerating deposit growth. They welcomed the recently introduced loan concentration limits on GREs and emirate governments.
Directors regarded the continued focus on prudent fiscal policy as appropriate. They particularly welcomed the continued gradual consolidation plans and bringing spending closer to levels that would allow saving an equitable share of oil wealth for future generations. They also noted that strengthening the budget process in Abu Dhabi would support better fiscal planning. Directors commended the authorities’ continued efforts to strengthen coordination of fiscal policies between the federal and emirate governments.
While emphasizing the need for further policy action if real estate prices continue to increase rapidly, the IMF officials welcomed the recent introduction of targeted macro-prudential measures and the increase in Dubai’s real estate registration fee, and encouraged additional fees for reselling properties within a relatively short time to discourage speculative demand. Directors felt that these measures could be complemented by further tightening the recently introduced macro-prudential policies if real estate lending increased more strongly.
