UAE non-oil growth to rise to 3.5% in 2020: IMF

The UAE’s non-oil sector growth will increase to 2.8 percent in 2018, up from 1.9 percent this year, before picking up gradually to 3.3 percent in 2019 and 3.5 percent in 2020, according to the International Monetary Fund (IMF) mission chief to the UAE.

“Overall, we are expecting the growth will strengthen gradually and the reasons for that are firming oil prices, pickup in global trade, increase in investment in preparation for Expo 2020 and the speed of fiscal consolidation easing compared to the last two years,” Natalia Tamirisa told Argaam in an exclusive interview.

On Sunday, the Dubai government announced an AED 56.6 billion budget for 2018, allocating higher spending on infrastructure in the run-up to Expo 2020.

Taking in view the new budget along with other factors such as improving global market sentiments, the IMF estimates Dubai’s economic growth to strengthen to 3.3 percent in 2018.

“We project that growth in Dubai will strengthen to about 3.3 percent next year and in large measure, this will be due to increase in investments and global factor like the pickup in global trade. Dubai, being an important hub for logistics, for trade, for finance, will be benefiting from this rise in global trade and growth,” Tamirisa said.

Commenting on the impact of the 5 percent value-added tax (VAT) to be introduced in the UAE next month, she said the IMF maintains its view that the tax will not affect growth adversely as the rate is quite low. 

“In addition to that, the government is substituting for consumer spending because they are getting revenues from the VAT which they will be spending. So, this will offset to some extent the impact of consumer spending,” Tamirisa said.

"Of course, there is likely to be some frontloading of spending through the last quarter of this year, and maybe there will be less spending in the first quarter of next year, but as a whole, we don’t expect a significant impact,” she added.

In March 2017, UAE economy minister Sultan bin Saeed Al Mansouri said the introduction of VAT would help the UAE government to generate an estimated AED12 billion in the first year, which will increase to AED20 billion in 2019.

The IMF estimates VAT to contribute 1.5 percent of GDP per year in revenues over the medium term.

“Initially, it will be bit less, but gradually the revenue contribution from GDP should come up to 1.5 percent of GDP over the next couple of years,” Tamirisa said.