UAE-ECONOMY: Iraq war will not have significant impact

By IPS Correspondents Reprint | | Print |

Att.Editors: The following item is by the United Arab Emirates news agency (WAM)

ABU DHABI, Apr 19 2003 (IPS) - The United Arab Emirates’ (UAE) A2 country ceiling is based on strong economic and financial fundamentals, according to Moody’s in its annual report.

The war in Iraq will not have a significant impact on the country, although it might lead to a slowdown in growth this coming year and might also have a dampening effect on the structural reform process and FDI flows, the ‘Gulf News’ said.

However, some of these factors might be mitigated by an expected increase in oil production. The current account has been in surplus for many years, while reserves and foreign assets of the public sector are credibly reported to be extensive and of high quality, the report noted.

The analysis of fiscal policy, however, is complicated by the fact that although the budgets of the individual emirates account for about two-thirds of total public expenditure, only the federal budget is published in detail.

Higher oil prices in 2000 did improve the fiscal and current account balances substantially as well as boost foreign exchange reserves considerably. However, the decline in oil output in 2002 and the slower economic growth over the last two years have pushed the fiscal deficit back up to about 10 percent of GDP as well as weakening the current account position, the report added.

The rating agency expects that the government will lift restrictions on foreign majority ownership in non-strategic sectors.

"As growth is expected to slow down again in 2004, the Central Bank will be under pressure to monitor the loan quality of the UAE’s banks as regional and domestic growth slows. Better regulation of the stock market – which has been booming in recent years – will also be necessary in times of contraction."