IMF Report

The latest International Monetary Fund report on the UAE forecasts a 60 per cent rise in GDP from $185 to $294bn from 2007 to 2012.

This study is already outdated and understated, since it assumes that oil prices will remain in the mid-$60 per barrel range for the forecast period. Oil is currently hovering above the $90 per barrel level, and shows little sign of falling.

More significantly, non-hydrocarbon revenues are set to double to $49bn, since domestic investment as a percentage of GDP will continue at the very high level of 21-26 per cent in order to promote economic diversification. Total investment in Abu Dhabi over the decade will be a whopping $161bn (driven by huge oil revenue), $63bn in Dubai and $2bn in Ras Al Khaimah.

Interestingly, there has also been a regional spillover effect from the growth in the UAE economy, with nations such as Pakistan and Egypt benefiting from UAE direct investment, as well as Jordan, Syria, Morocco and Tunisia.

The report comes with a warning. With an economy that is growing so quickly, a key challenge is to contain inflation, driven by housing rental price increases and strong demand growth. Going back to the old dollar-peg issue that I’ve spoken about in previous posts, the IMF says the authorities remain committed to the US dollar peg to the dirham. Most exports and imports are US dollar denominated and that a large proportion of foreign assets are invested in US dollar instruments.