UAE is coping well with surging liquidity - Moody's

Dubai: "The UAE economy is having to cope with huge surpluses on the current account, with no independent monetary policy to treat them. There is high credit growth too."

This was the challenge identified by Pierre Cailleteau, senior vice-president of Moody's Sovereign Risk Unit, in Dubai for a conference on regional credit risk. Yet, he spoke highly of the UAE's efforts to develop its economy in the midst of soaring oil prices and monetary liquidity.

The problem was familiar in international terms, he said in an interview with Gulf News. It is like the capital flow problem for any country which becomes attractive, "like the Baltic states", he said. "From the rating perspective, there are two questions is it a big concern, and is there an easy fix?"

The answer in both cases is no, he suggested. "The inflation problem faced by people generally is not the same for government. It has not reached a level which is detrimental to the pursuit of economic diversification strategy, which is proceeding fast. I'm not sure that any change of exchange rate policy would help. The alternative is quantitative controls."

Earnings

Cailleteau expressed belief in "elevated oil prices ? for quite a long time". The issue is how earnings will be managed. "In our view it is better to diversify through investing abroad." With too much wealth to be absorbed at home, it becomes an exercise in portfolio strategy, and "the world economy is still performing well", offering opportunities. "This [task] has been managed quite competently so far."

As for stock market volatility, that presents little concern. "Fundamentally, it is a matter of investor protection or education ? It is sad for people who have lost, but it is good that [market correction] happens."

The banking system is not massively exposed, and government finances are not at risk, he affirmed. "Financial stability is not an issue."

So what does the upscaling of rating agency presence here imply? "It reflects that this region is now more central. It has become difficult to talk about global issues without knowing what is happening here. Critical mass has been reached."