US-based association for the global financial services industry, Institute of International Finance (IIF) has stated that the UAE economy will report faster growth over the next three years, supported by a wide range of pandemic containment measures, accommodative monetary policy, and a resilient banking system.
The global think-tank expects a modest economic recovery in 2021 with real GDP growing by 2.3 percent, following a contraction of 5.7 percent in 2020. Furthermore, it has predicted three percent growth for the next year, 3.4 percent for 2023, and 3.5 percent a year later.
Garbis Iradian Chief Economist IIF – MENA region
“The recovery will be supported by the partial recovery in domestic demand and an increase in net exports. Our projections assume that the pandemic will be contained, and oil prices pick up to $52 per barrel in 2021. Monetary policies will remain accommodative until the recovery is well-established. The banking system has remained relatively resilient, helped by sound initial capital and liquidity positions and flexible response by the central bank including regulatory forbearance. Profitability challenges in the low-interest-rate environment may weigh on banks’ ability to expand credit to the private sector.”
The country can afford a modestly expansionary fiscal stance in 2021 given its large financial reserves, spare room, and a partial recovery in oil prices. The re-prioritization of spending has helped to reduce the fiscal deficit to 7.3 percent of GDP in 2020.
“We expect the deficit to narrow in 2021 to 4.8 percent of GDP as the increase in revenues will more than offset the increase in spending,” said Mr. Iradian.
The UAE’s external status remains in an enviable position with the current account still in surplus, and public foreign assets at approximately $845 billion, which is equivalent to 220 percent of GDP.
“The progress in digital transformation combined with other structural reforms will help the UAE to further diversify the economy away from oil and boost potential growth,” he stated.
Mr. Iradian further praised the substantial progress made by the UAE in the adoption and implementation of a digital legal system in information and communication technology (ICT) that was instrumental in resolving initial challenges following the COVID-19 pandemic.
