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The UAE economy will post faster growth each year over the next three years, helped by a range of pandemic containment measures, accommodative monetary policy and a resilient banking system, said a global think-tank.

The Institute of International Finance expects modest economic recovery in 2021 with real GDP growing by 2.3 per cent, following a contraction of 5.7 per cent in 2020. The Washington DC-based institute predicted three per cent growth for the next year, 3.4 per cent for 2023 and 3.5 per cent a year later.

“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,” said Garbis Iradian, chief economist for Mena region at IIF.

“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,” he said.

Expansionary fiscal stance

The UAE can afford a modestly expansionary fiscal stance in 2021 given its large financial buffers, spare capacity, and a partial recovery in oil prices. The reprioritisation of spending helped limit the fiscal deficit to 7.3 per cent of GDP in 2020.

“We expect the deficit to narrow in 2021 to 4.8 per cent of GDP as the increase in revenues will more than offset the increase in spending,” said Iradian.

The UAE’s external position remains in an enviable position, with the current account still in surplus, and public foreign assets at about $845 billion, which is equivalent to 220 per cent of GDP.

IIF’s Iradian hailed the UAE’s major progress made in information and communication technology (ICT) adoption and development of a digital legal framework which were instrumental in overcoming initial challenges in the wake of the coronavirus pandemic.

“Such 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 said.

World Economic Forum has ranked the UAE second in ICT adoption, fourth in digital legal framework and sixth in the national Information and Communication Technology Index.

Successfully containing Covid-19

IIF said the UAE has limited the health impact of the Covid-19 pandemic, thanks to its relatively young population and a range of containment measures which have mitigated the spread of the virus and the number of deaths.

“A relatively young population, improved testing, and better treatment of the virus in hospitals have kept the number of deaths in the UAE low,” the Institute of International Finance said in its report on the UAE.

Quoting authorities in the UAE, the Washington DC-based body said restrictions imposed recently again about social distance to contain he pandemic will fade over time as vaccine coverage expands and therapies continue to improve.

The UAE’s coronavirus vaccination is the world’s second fastest after Israel. The target is to immunise more than half of the residents by March and 90 per cent by June.

— waheedabbas@khaleejtimes.com

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