centertopprincples of macroeconomics
Report 76500princples of macroeconomics
Report 2200017094203000030175207060056600centerbottomNasser Alkaabi201540057
GRADUAL ECONOMIC ADJUSTMENT
Firstly, the countrys large financial buffer, safe- haven status, diversified economy, and the authorities robust policy responses are facilitating the adjustments while safeguarding the economy and the financial system. Authorities have also reformed energy subsidies, improving the business environment, despite the UAEs highly global ranking. It also strengthens policy frameworks in financial, fiscal, statistical area. The outlook of oil prices remains unchanged.
Secondly, Together with lower oil prices and lower oil production growth, growth has declined due to the postponement of some public infrastructure projects and a slowdown in global trade. High interest rates, stronger exchange rate, and subdued stock and property prices. Financial markets have not been significantly affected by diplomatic rift with Qatar
Thirdly, the nonoil deficit is estimated to have declined by 6 percentage points to 21.8 percent of no oil GDP in 2016, following the decline of 9.7 percentage points. The deficit was financed mainly through withdrawals from the sovereign wealth funds and external borrowing.
In addition, Total governments and GRE debt declined by 5 percent of GDP, including Abu Dhabis Eurobond issue ($5billion in May 2016) and Sharjahs sukuk issue ($ 500 billion in January 2016). Dubais GRE debt decreased by 60 percent of Dubais GDP
Further, No oil exports remains stable, Current account surplus declines when the lower oil export and still strong import. Banks assets increase, thus gross international reserves declined to $ 85.4 billion
More, shrinking interest margins and rising impairment charges reduced profitability and triggered cost cutting. The NPL ratio has stopped declining since 2015. Banks remained adequately capitalized and outstanding loans are concentrated in the private sector. Although deposit growth strengthened, banks continued to access wholesale funding
No oil growth is projected to rise to 3.3 percent in 2017, reflecting increased domestic public investment and a pickup in global trade. Market analysts suggest that the real estate market is close to balance but is facing difficulties in rising supply. Inflation will rise to 2.2 percent this year, partly reflecting utility and gasoline price adjustments, and higher imported inflations. The current account surplus is expected to improve to 2.6 percent of GDP this year mainly owing to rising n oil exports. Rising infrastructure investment, including preparations for Expo 2020
Despite the improving outlook, risks are skewed to downside and largely reflect the uncertainties surrounding oil prices, policies in major economies, and financial market conditions. Lower oil prices decline could weaken trade, tourism, and asset and asset price. Retreat from cross- border global shift in policies. Tighter and more volatile financial condition
Under current policies, the budget is projected to return to balance by 2020. The gap between current nonoil primary deficits, the federal budget is projected to be balanced
The authorities intend to underpin fiscal consolidation with a combination of spending restraint, improvements in efficiency, and increase in nonoil revenues. Stepped-up spending reviews supported by appropriate budget controls would increase the efficiency of spending and contains its growth. Revenue needs timely introduction of VAT and excise taxes
The underlying goal is to adapt to the new oil market realities. The states relies on oil revenues to provide generalized benefits and employment has been challenged
A more comprehensive and transparent fiscal policy framework is facilitate decision-making and foster credibility, deals with strengthening budget management, building fiscal frameworks, enhancing coordination between government and GREs, improving cash management remain a priority, particularly in an environment of fiscal consolidations
The CBC is considering consolidation its operational framework with a view to keeping money market rates in line with those implied by peg while introducing market determined
The peg is supported by comfortable external financial buffers
Banks remain sound and liquid with stable and fully provisioned NPLs . However, loans to related parties concentration risks remains high in some cases.
Staffs welcome the CBUs introduction of the Basel iii capital adequacy standards in March 2017. Authorities did not expect banks to need additional capital
Given the openness of the economy, the steady increase of nonresident deposit, and UAEs geographic focus on measure to mitigate risk
The CBU initiated corrective measures to improve the compliance of the affected institutions to AML/CFT requirements to prevent disruption of those sectors to the informal sector.