Dubai: The UAE and the rest of the oil-producing countries in the Gulf will continue to face pressure from low oil prices, coupled with tightening fiscal and monetary policies this year, the World Bank said on Tuesday.
In the latest update of its Global Economic Prospects report, the bank slashed the growth forecast for the UAE to 2 per cent this year, a drop of 1.1 percentage point from the January 2016 projections. The country’s GDP was estimated to be at 3.4 per cent last year.
For the whole Gulf Cooperation Council (GCC) region, growth is expected to fall from 2.9 per cent in 2015 to 2 per cent this year, the slowest pace since 2009.
The World Bank said the downgrades are partly due to expectations that oil prices will continue to trade lower for the year, at an average of $41 per barrel. “For GCC countries, continued low oil prices, together with tightening fiscal and (to a lesser extent) monetary policy, will be a drag on activity in 2016,” said the World Bank.
Across the Middle East and North Africa, however, growth will edge up slightly to 2.9 per cent mainly due to the strong economic activity in Iran resulting from the lifting of sanctions early this year.
Despite the lower growth forecast, the UAE is still expected to fare better compared to its peers in the region. Alp Eke, senior economist at the National Bank of Abu Dhabi (NBAD), said the country's economy is "very resilient to external shocks, because of foresight."
"Economic and financial reform programmes to diversify the economy and to improve government budget have been implemented ahead of time even when oil prices were at record levels," Eke told Gulf News.
Reforms have recently been introduced in the UAE and other GCC countries in an attempt to broaden revenues and compensate for significant losses from plunging oil prices.
Only recently, Gulf states agreed to start collecting value-added tax (VAT) in 2018. The UAE also lifted last year the oil subsidies, a move seen to boost government revenues.
The World Bank expects GCC states to rely on domestic and international debt issuance to finance deficits, and in some cases to continue using public assets.
“The downward pressure on growth from fiscal consolidation will be reinforced in the GCC countries by tightening monetary policy in tandem with any rate increase in the United States,” the report stated.