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UAE – Economic diversification is the key for the growth

UAE – Economic diversification is the key for the growth

As the UAE develops its role as a regional hub for trade, finance, transport and tourism, it should intensify policy initiatives to promote economic diversification and become progressively more independent from the Oil-economy. “The United Arab Emirates continues to benefit from the perception of being a safe haven for business and this has helped to limit the negative effects of the fall in oil prices, the slower global growth and the volatility in emerging economies,” said Bank Audi, the largest bank in Lebanon in a recent economic report.

Since the collapse of international oil prices has eroded large UAE’s fiscal surpluses, the real gross domestic product, or GDP, growth is estimated at a moderate three per cent in 2015, against 4.6 per cent in 2014. The non-Oil sector is ready to live his growth, estimated at a rate of about 5%, driven by a positive outlook for activity in tourism and construction.

The fiscal position of the UAE has deteriorated in 2015, with the balance of the government’s budget which recorded its first deficit since 2009“. “This has led some budget adjustments, including the increase in electricity and water tariffs and the liberalization of fuel prices while the government is considering the possible implementation of a VAT in coordination with other member countries the GCC in order to strengthen its ‘nonhydrocarbon’ income,” the report said.

The government revenues are estimated to have registered a significant decline of $ 44.6 million in 2015, while government spending has moved down to $ 6.2 million. The fiscal deficit reached 5.5% of GDP in 2015, compared to a positive budget surplus of 5% in 2014.

The overall consumer price index for the United Arab Emirates rose to 3.5% in November 2015. The banking sector has witnessed during 2015 a slowing activity. The report noted that the recent rise in interest rates in the US could lead to a tightening of financial conditions, despite the impact of lower oil prices on the fiscal and foreign surplus.

The growth in the oil sector of the UAE is likely to slow down and, with Saudi Arabia, which excludes any increase in production as a result of the falling price of crude oil, there will be little opportunity to increase production in the coming years“, adds the report. It will be therefore essential the definition of a strategy of economic diversification to ensure a steady growth of the country in the mid-long term.

Source: Khaleej Times