UAE takes the lead in fiscal reforms to support growth

Dubai

In a series of measures announced by the governments of Abu Dhabi and Dubai, the UAE has taken a lead in supporting the economy through a number of fiscal policy measures that are expected to support economic growth in the face of rising interest rates and slowing credit growth.

The Government of Abu Dhabi has announced a Dh50 billion support package for the economy over the next three years, along with cuts and freezes to levies and fees in both Abu Dhabi and Dubai.

Analysts see the latest measures such as scrapping a mandatory deposit for private sector employees could free up liquidity for businesses. Additionally, introducing a new insurance plan costing Dh60 per year for workers’ guarantees which will replace the mandatory deposit of Dh3,000 per employee will reduce financial burden on private sector significantly.

“We see the UAE’s recent policy announcements as a multi-pronged approach to support the economy over the short and medium-term,” said Bilal Khan, senior economist, MENA and Pakistan at Standard Chartered Global Research.

The recent reforms include measures to boost consumer confidence through direct and indirect fiscal stimulus. While Abu Dhabi has announced measurers create jobs through its fiscal package Dubai’s announcement to cut fees and levies in a range of sectors including property and the aviation industry; and freezing school fees are helpful in boosting consumption.

Lowering the costs to firms of hiring workers in the private sector is expected to come as a big relief in cost of doing business. Improving the UAE’s attractiveness for expatriates is also expected to boost domestic demand in a range of sectors that currently face excess capacity, such as hospitality and real estate.

“We think the authorities’ focus on short-term fiscal measures and medium term structural reforms should help support economic activity in the UAE, which slowed sharply in 2017. We see these policy actions as supportive of our view that growth should improve to 2.6 per cent in 2018 and improve gradually over the medium term,” said Khan.