IMF boosts UAE growth forecast, encourages corporate tax introduction

The UAE is continuing to adjust to the “prolonged decline” in oil prices but is expected to see growth strengthen this year, the International Monetary fund said on Sunday.

In a statement following a consultation conducted last month, IMF team lead Natalia Tamarisa said non oil-activity in the emirates remained “subdued amid corporate restructuring, real estate overhang, and tightening fiscal conditions”.

However, the official indicated rising oil production and government spending is expected to strengthen overall growth to 2.9 per cent this year and 3.7 per cent in 2019, from the 2 per cent and 3 per cent respectively the organisation forecast in April.

The IMF projects that inflation will be 3.5 per cent this year following the introduction of a 5 per cent value added tax in January but should ease into 2019. While the country’s fiscal deficit is expected to remain at 1.6 per cent of GDP in 2018 and return to a surplus in 2019.

Read: IMF says UAE’s VAT introduction has gone well, impact short-lived

“Given large fiscal buffers, ample spare capacity, and rising investment needs for Expo 2020, the government has appropriately switched to providing stimulus to the economy,” said Tamarisa.

“Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity, would augment their impact on growth.”

Furthermore she said the country could benefit from improvements in spending efficiency and the strengthening of non-oil revenues, “including by gradually replacing a system of numerous and regressive fees with corporate taxation”.

The IMF welcomed recent moves to introduce 100 per cent foreign ownership in some sectors, long-term visas for professionals and ease licencing requirements and business fees but said other priorities should include boosting competition and privatising non-strategic government entities.

Read: UAE Cabinet approves 10-year visas, will allow 100% foreign ownership by year-end

“In particular, developing domestic government debt markets would catalyse financial market development and expand sources of financing for SMEs,” Tamarisa said. “Enhancing the quality of education and healthcare and promoting gender equality would cultivate talent.”

Abu Dhabi unveiled a series of initiatives and reforms last month under a Dhs50bn stimulus plan announced earlier this year.

Among the plans are to ease business licencing requirements, speed up government payments to businesses, introduce a public private partnership law, increase SME lending and boost research and development.

Read: Abu Dhabi plans new transport projects, healthy living drive

Yesterday, the UAE Cabinet also approved a Dhs180bn ($49bn) three-year budget with no deficit. This will see spending increase 17.3 per cent next year to Dhs60.3bn ($16.4bn).

Read: UAE Cabinet approves Dhs180bn three-year budget, 2019 spending surge