DUBAI (Reuters) - The International Monetary Fund lifted its forecasts for economic growth in the United Arab Emirates because of expectations that oil production and state spending will rise.
The Arab world’s second biggest economy is now likely to expand 2.9 percent this year and 3.7 percent next year, Natalia Tamirisa, IMF mission chief to the country, said late on Sunday. Gross domestic product grew 0.8 percent in 2017, preliminary UAE data shows.
In April, the IMF had predicted GDP would expand 2.0 percent this year and 3.0 percent next year.
A deal among global producers to cut oil output was eased in mid-2018, letting the UAE start raising output. Meanwhile, rebounding oil prices have given the government more money to spend; on Sunday, the UAE cabinet approved a 17.3 percent rise in the UAE federal budget for 2019 compared to this year.
This may compensate for sluggish growth in the private sector, which faces rising interest rates as U.S. monetary policy tightens and has also been hit by slumping property prices.
“Non-oil activity remains subdued amid continued corporate restructuring, real estate overhang, and tightening financial conditions,” Tamirisa said in a statement after annual consultations between the IMF and the UAE.
Last month, S&P cut its credit ratings for two Dubai state-owned companies, saying weakness in the Dubai economy had reduced the government’s ability to provide financial support to the firms if needed.
Tamirisa’s statement urged the UAE to monitor liabilities related to government enterprises more closely. Debt problems at Dubai state companies in 2009 triggered a financial crisis which nearly caused Dubai to default on its debt.
Tamirisa told Reuters, however, that Dubai government finances were not at present a source of concern.
The ratio of Dubai’s public debt to GDP is manageable at 30 percent, not high by international standards, and is expected to rise only moderately in the next couple of years as Dubai prepares to host the Expo 2020 world’s fair, she said.
Tamirisa also noted Dubai state firms had been restructuring and in some cases deleveraging, which left them more able to manage risks. “We do not expect pressures on Dubai finances.”
Plunging property prices helped to trigger the Dubai crisis of 2009, but Tamirisa said current UAE property price falls still looked fairly moderate from a long-term perspective.
She noted that since the crisis, authorities had taken steps to limit risks to the banking sector from property lending, and many measures were working well. “Overall, risks are manageable.”
The UAE’s consolidated fiscal deficit, including individual emirates as well as the federal government, is expected to remain stable at about 1.6 percent of GDP this year and turn to a surplus next year, the IMF said.
Reporting by Andrew Torchia; Editing by Raissa Kasolowsky