(MENAFN - Khaleej Times) The call by the International Monetary Fund (IMF) to facilitate small and medium-sized enterprises (SMEs) and start-ups' access to finance in the UAE is expected to expedite the implementation of the long-pending bankruptcy law.
The landmark legislation, passed by the UAE cabinet in July 2015 but not yet enforced, is expected to decriminalise bounced cheques and facilitate corporate bankruptcies.
Legal experts said the long-awaited law would be implemented after ratification by the consultative Federal National Council and the Supreme Council.
Experts say the new law, which has been in the pipeline since 2009, will have a major impact on easing the business ecosystem in the country. It is expected to enable both listed and privately-owned companies that get into difficulties the option of restructure and rescue rather than being forced to wind up.
As a run-up to the enforcement of the law, banks in the UAE pledged that they would suspend legal action against cash-strapped SMEs, which account for more than 60 per cent of the nation's gross domestic product.
The UAE Banks Federation (UBF), a professional body representing 49 banks in the UAE, has announced a new mechanism that in effect would act as "a mini insolvency law" aimed at preventing a surge in defaults.
According to AbdulAziz Al Ghurair, chairman of the UBF, the new initiative would be applicable to companies that have borrowed Dh50 million or more from several banks and are showing signs of financial stress that often lead to inability in servicing their debts.
The executive board of the IMF, which concluded the Article IV consultation with the UAE last week, also called for the UAE to ease restrictions on foreign direct investment (FDI) in the new investment law and spur competition.
Praising the UAE's efforts to further diversify the economy away from oil, directors called for continued action to increase productivity and foster competitiveness.
"Efforts should continue to improve the business environment, ease restrictions on FDI in the new investment law and spur competition. In addition, priority should be given to upgrading the quality of education, promoting innovation and entrepreneurship, and facilitating SMEs' and startups' access to finance, notably through an approval of the bankruptcy law and further broadening the credit bureau's coverage," the IMF said.
The IMF directors welcomed the Emirates' resilience to the oil price shock and praised the authorities for their prudent policies, which helped build large fiscal and external buffers and strengthened the economy. "Nevertheless, persistent lower oil prices continue to pose challenges. Directors underscored the need for sustained sound macroeconomic policies to reduce fiscal vulnerabilities, safeguard financial stability and promote long-term growth."
Welcoming the UAE's commitment to pursue fiscal consolidation, the IMF encouraged the authorities to diversify revenues and rationalise current spending, while further strengthening public financial management.
The IMF welcomed plans to introduce a VAT (value added tax) and increase excise taxes, which could be followed by a corporate income tax. They also recommended phasing out remaining energy subsidies.
The IMF also stressed that priority should be given to curb other current spending, while preserving public investment and enhancing its efficiency. Directors noted that developing a consolidated forward-looking medium-term fiscal framework would assist the authorities in setting direction for fiscal policy, and in aligning resource allocation with the UAE 2021 vision. They encouraged the authorities to strengthen the debt management framework to better account for contingent liabilities from government-related entities and public-private partnerships.
The IMF said the dirham's dollar peg remains an appropriate anchor for price and financial stability and supported continued efforts to enhance the monetary framework, particularly by improving liquidity management.
Issac John Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.