(MENAFN- Khaleej Times) Driven by an ongoing momentum in the non-oil economy, the UAE economy will remain strong in 2014, the International Monetary Fund, or IMF, said as it revised upward the growth of Arab world's second largest economy to 4.5 per cent from 3.9 per cent forecast four months ago
The latest upbeat projection from the Washington-based organisation was in the wake of a recent UAE visit by an IMF mission led by Harald Finger to review macroeconomic and financial sector developments
"Economic growth in the UAE is expected to remain strong. The economy is estimated to have grown by 4.5 per cent in 2013, supported by tourism, hospitality and real estate. We expect real GDP (gross domestic product) growth to remain firm at 4.5 per cent this year," Finger said after the conclusion of his meetings
The IMF mission, during its visit in the last week of January, met with Sultan bin Nasser Al Suwaidi, Governor of the UAE Central Bank; Younis Haji Alkhoori, Undersecretary, Ministry of Finance; other senior government officials, and representatives from the business and financial community
"The real estate sector in particular has seen a steep recovery, with prices in the Dubai residential real estate market having increased rapidly in selected areas," Finger noted in a statement
While there will continue to be a momentum in the non-oil economy, further growth in oil production could be limited in the context of an amply supplied global oil market, the IMF mission head said. "Inflation is expected to increase moderately, driven by rising rents," Finger said
"Looking ahead, growth in the coming years will benefit from a number of megaprojects and Dubai's successful bid for the Expo 2020. The total cost, pace of execution, and financing of the new megaprojects remain uncertain. If not implemented prudently, these projects could exacerbate the risk of a real estate bubble. Moreover, these projects may create additional financial risks for Dubai's government-related entities (GREs) and the banking system in light of the still considerable debt overhang from the 2009 crisis," Finger said
The IMF observed that fiscal policy adequately continued to unwind the large expansion that was put in place in the wake of the 2008-09 global financial crisis
The budget execution of the federal and emirates governments for the first nine months of 2013 was broadly in line with spending plans
"The increase in Dubai's real estate registration fees from two to four per cent last October was a welcome step in addressing speculation in the real estate market, and further increases could be contemplated in case the pace of price increases does not abate sufficiently. While 2014 budgets for some emirates are not yet available, we understand that the trend of consolidation is planned to continue this year," Finger said
The IMF official pointed out that newly implemented regulations on loan concentration and real estate exposure for banks would help protect the soundness of the banking system, which has remained amply capitalised and liquid
"The new loan concentration limits will help contain risks to banks' balance sheets in the context of the newly planned megaprojects. It will now be important to agree, as planned, on transition paths for banks that are currently not meeting the new limits. The new maximum loan-to-value ratios for mortgage lending will provide banks with a buffer against undue exposures, while also helping to limit the degree of speculation in the real estate market. Looking ahead, the Central Bank could consider further tightening these rules if price increases in the real estate market remain very large.
Recently, EFG Hermes raised growth forecast for the UAE from 4.7 per cent to 5.4 per cent following Dubai's successful Expo 2020 bid
Propelled by huge non-oil sector investments, continued buoyancy in trade and services, and a booming tourism industry, the UAE has been on a firm growth trajectory. The UAE has already set into motion a strategy to further reduce the dependence on oil to 10 per cent in future. The Ministry of Economy said in a report that the UAE's economy has grown exponentially by nearly 231 times since the federation was set up in 1971 and the growth catapulted the country to emerge as the second largest Arab economy. From Dh6.5 billion in 1971, the UAE's GDP is estimated to have touched all time high of Dh1.45 trillion in 2013
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