x Abu Dhabi, UAE Thursday 20 July 2017

IMF gives thumbs up to UAE on economy

Growth prospects in the UAE are positive, the IMF said yesterday, but warned about the risk of a renewed boom-bust cycle.

The IMF says the UAE is benefiting from a surge in visitors but is urging caution about signs of recovery in the property market. Razan Alzayani / The National
The IMF says the UAE is benefiting from a surge in visitors but is urging caution about signs of recovery in the property market. Razan Alzayani / The National

Growth prospects in the UAE are positive, the IMF said yesterday, but warned about the risk of a renewed boom-bust cycle.

Rebounding momentum in the property and construction sector, along with strength in the tourism-related sectors would help to offset a slowdown in oil output expansion, it said in a report released yesterday.

Overall GDP growth would ease from 4.3 per cent last year to 3.6 per cent this year.

In the non-oil economy, expansion would accelerate to 4.3 per cent, from 3.8 per cent last year, the IMF said.

The upbeat forecast is a reflection of generally rosier prospects for the economy. Airports, hotels and shopping malls are benefiting from a surge in visitors, while trade flows have also remained robust.

But the IMF is urging caution about signs of recovery in the property market. The Washington-based agency has proposed targeted rises in property-related fees in Dubai beyond the current level of 2 per cent to help to curb speculation in the market and generate revenue for the Government.

Average residential sale prices rose 35 per cent last month from the year-earlier period, according to an unnamed UAE bank, said Harald Finger,the IMF's mission chief to the UAE, in a conference call yesterday.

"If price rises continue there's certainly a risk of a new bubble forming," he said. "But in terms of prices we are still well below the level of 2008."

Concerns about prices in Dubai rising too quickly have emerged this year as queues have returned outside sales launches by developers and the pace of sales have generally quickened.

In a bid to minimise the risk of a repeat of the property bubble that formed prior to the global financial crisis, the Central Bank has drafted loan-to-value limits on mortgage lending. Suggested proposed caps include 80 per cent for Emiratis and 75 per cent for expatriates.

The IMF also expressed concern on Dubai's $60 billion of liabilities due by 2017.

In a report concluding its recent mission to the UAE in April and May, the IMF said the mortgage limits, together with other plans to control bank lending to government-linked firms, would help to mitigate property-related risks.

But the immediate effect on the residential market, largely a cash market, would be limited.

The IMF's warning about the sustainability of the property market resurgence follows the unveiling in recent months of new megaprojects such as Mohammed bin Rashid City, planned to include the world's biggest shopping mall, sprawling parks and more than 100 hotels.

Mr Finger said in meetings Dubai officials had stressed the exuberance of the previous boom-bust cycle was unlikely to return as the planned schemes would be rolled out in a gradual manner.

The IMF has also raised the alarm about rising levels of indebtedness among the Dubai Government and its stable of linked companies.

"The debt levels in Dubai are still a source of concern," said Mr Finger.

Dubai's debt remained "substantial" at US$142 billion, about 102 per cent of GDP, the IMF estimated. Around $60bn of debt linked to Dubai government-related companies would fall due between this year and 2017, it said.

Forthcoming maturing debt next year included $20bn in Dubai government debt lent by Abu Dhabi and the Central Bank in 2009 as part of the Dubai Financial Support Fund. The cash was used to help companies struggling in the aftermath of the financial crisis.

"We would want to see this issue addressed well ahead of time in a way that gives confidence to markets," said Mr Finger.

Beyond next year, restructured debt related to Dubai World and Nakheel, the property company, will begin to mature in 2015 and 2016, the IMF said.

Dubai World emerged as the emirate's most high-profile debt crisis after the Dubai government-controlled conglomerate restructured $25bn in debt in 2011.

Debt issuers in Dubai have increased bond sales this year after the emirate's credit risk dropped to its lowest levels since the global financial downturn in 2008.

Dubai's stable ofstate-linked firms upped their debt over the past year to about $93bn, from around $84bn in March last year, said the IMF.

 

tarnold@thenational.ae