UAE 'has most liberal economic system'

A prominent U.S. think-tank group that offers economic and investment ratings for countries, has classified the UAE as having one of the most liberal economic systems and such a status is set to improve further with the government's privatisation drive.

The UAE ranked 23rd among 156 countries covered by the Index of Economic Freedom (IEF) of the Heritage Institute last year to gain a semi-complete economic freedom classification that falls behind only industrial nations.

The index, which has been issued annually since 1995 in association with the U.S. Wall Street Journal, includes 10 components covering economic and trade policies, customs tariffs and protection measures, taxes, budget and balance of payments deficits, foreign direct investment, wages, inflation rates, financing and banking activities, copyrights, intellectual and industrial property, bureaucratic measures and the black market.

A rating of between one and 1.95 points carries a classification of complete economic freedom while between two and 2.95 points indicates a semi-complete freedom. Between three and 3.95 points indicates poor economic freedom and above that average means economic freedom is virtually absent.

The index, published in the annual report of the Kuwait-based Inter-Arab Investment Guarantee Corp (IAIGC), showed the UAE has advanced steadily in economic liberalism measures since 1995 while Bahrain has retreated.

From 2.20 points in 1995, the UAE rating improved to 2.15 points in 2001 while Bahrain, which was classified among the first category, fell back to the second category. Its 1.80-point rating in 1995 was amended to 2.00 points last year.

Only 14 countries were classified as having full economic freedom last year while 57 states were given a semi-complete economic freedom status. In the Arab world, that status was given to Bahrain, the UAE, Jordan, Kuwait, Tunisia, Oman and Qatar.

The Arab countries with a poor economic freedom classification were Saudi Arabia, Morocco, Algeria, Djibouti, Lebanon, Mauritania, Egypt and Yemen.

At the bottom of the list, which involved countries with no economic freedom, were Syria, Libya, Iraq, Sudan and Somalia. Syria ranked 145th in the Index while Libya and Iraq ranked 153rd and 155th respectively. Sudan and Somalia were given no ranks.

"I think we will see further improvement in the UAE in the coming period as the government is continuing to liberalise the economy, improve the investment climate and give the private sector a bigger role in the domestic economy," said an Abu Dhabi-based banker.

Figures by IAIGC showed the UAE already enjoyed one of the best monetary and fiscal records in the Arab world, with its inflation rate remaining under control and the current account recording high surpluses in some years.

In 2000, inflation stood at 2.9 per cent but it was slashed to 1.3 per cent in 2001, the third lowest rate in the Arab world after that in Bahrain and Oman. A complex index issued by IAIGC about the investment climate in Arab states also found that there was substantial improvement in the UAE, granting it a rating of three points, one of the highest in the region in terms of the monetary policies and external financial balance indicators.

"The Heritage Index has become very important for policy makers and investors as it presents a clear picture about the economic and investment situation because it takes into consideration all aspects relating to trade and monetary policies, administrative and bureaucratic restrictions, the domination of the law, labour curbs, the rate of investments, and the extent of the public sector's contribution to the economy," IAIGC said.