UAE’s non-oil economic growth will rebound this year as austerity slows after a couple of years of tough belt-tightening due to low oil prices, a senior official of International Monetary Fund told Reuters on Sunday.
According to the report, Natalia Tamirisa, IMF mission chief to the Arab world's second biggest economy, predicted non-oil gross domestic product - the key gauge for most businesses and consumers - would expand about 3.3 percent in 2017, up from 2.7 percent last year.
The report said that IMF expects headline GDP growth to slow to 1.3 percent from 3 percent because of a shrinking oil sector in Abu Dhabi, the biggest emirate, as the UAE cuts oil output in line with a supply agreement among global producers.
Also, UAE is expected to benefit from a rise in global trade this year. After the governments of the seven emirates tightened fiscal policy by about 9 percent of GDP on a consolidated basis in 2015 and a further 5 percent in 2016, they now have room to ease that process.
"They plan to continue fiscal adjustment, at a gradual pace," Tamirisa was quoted as telling Reuters after annual consultations with UAE officials.
UAE’s infrastructure spending is set to grow more slowly in coming years and current state spending on goods and services will stay roughly constant in real terms, while the introduction of value-added tax next year will boost state revenues.
According to Tamirisa, UAE will effectively eliminate its fiscal deficit around 2022.
The introduction of VAT in the six GCC countries next year will be an administrative and technical challenge for the region, which has traditionally had minimal taxation.
But Tamirisa said preparations in the UAE were proceeding well. "Our discussions were encouraging. They have clearly taken many measures. There are some remaining issues but we are optimistic that it will take place on schedule" on January 1, she said.
Tamirisa also said that heavy infrastructure spending by Dubai, which is preparing to host the Expo 2020 world's fair, was unlikely to destabilise its finances.
According to her, the debt of Dubai's government plus government-related enterprises shrank to 112% of GDP last year from 126% in 2015. While the government is expected to run a small deficit in coming years because of Expo 2020 preparations, this is unlikely to push debt up sharply again.
"They've been deleveraging in recent years and this needs to continue. In addition, authorities should keep a close eye on contingent liabilities," she said, referring to the risk of unforeseen events such as a big change in the global economy.