UAE: Recovery requires reinvention

The UAE, like its GCC neighbours, saw its 2020 economic forecast cut sharply by a 6.6% contraction as a result of low oil prices and the COVID-19 pandemic. This week we analyse the repercussions of the decline on the state's budget and debt burden, while discussing the effectiveness of the UAE’s response. The UAE is once again having to reinvent itself, as Singapore has done on multiple occasions.

While the UAE is more diversified than its GCC peers, the possible extension of production cuts by OPEC+ and the growing debt of government-related entities (GREs) could weigh heavy on its recovery. We would not be surprised if the overall debt burden surges to over 150% of GDP next year, particularly with plans underway for further federal bond issuance following Abu Dhabi’s and Dubai’s recent return to the debt market. 

Despite the sour economic outlook this year, private sector activity and foreign investor interest in the UAE are showing signs of recovery. This, coupled with the growth-friendly modernisation reforms it has passed, and acceleration programmes it has launched, especially in Abu Dhabi are expected to contribute to a speedy recovery.

 

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