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UAE economy resilient, but facing challenges: IIF

April 2016

April 20, 2016 | 10:40 | Dubai

The UAE economy has been relatively resilient to the impact of the slump in oil prices as it has benefited from a relatively diversified economy, excellent infrastructure, political stability and ample foreign assets. Growth is estimated at 3.5% in 2015, but is likely to moderate to 3.0% in 2016 due to slowing oil production, Washington-based Institute of International Finance (IIF) has said in a report.

The authorities are pressing ahead with much-needed fiscal adjustments. Reductions in energy subsidies and nonpriority spending led to a significant decline in government spending in 2015, and additional cuts in spending and mobilization of nonoil revenues are expected for this year. The sizeable fiscal consolidation underway, combined with a modest recovery in global oil prices, should put the fiscal position on a more sustainable footing, IIF said, adding, “We do not expect a change in the exchange rate regime given that the peg is regarded as a critical anchor of economic stability. While a significant adjustment in the exchange rate would improve competitiveness and boost oil revenue in local currency, devaluation would lead to a spike in inflation, and would damage investor confidence and encourage capital flight.”

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