Growing without pain is game plan

The report shows spending habits have changed.

ABU DHABI // The Abu Dhabi Government will try to maintain rapid economic growth while introducing regulatory measures to prevent excessive market volatility or inflation. In the Economic Vision 2030 report, Abu Dhabi announced it would aim for seven per cent annual gross domestic product growth until 2015, followed by an average growth rate of six per cent until 2030. To stop such growth triggering inflation, the Government said it would introduce programmes to encourage residents to save rather than spend, while also improving its ability to measure price changes.

"I think the medium to long-term outlook is very strong for Abu Dhabi. Growth rates in that kind of range are likely, and may even be exceeded. The near-term outlook, however, is more difficult," said Simon Williams, the chief economist at HSBC. The Government is seeking to become recognised as an international business centre as part of its plan to achieve its growth rates, and has arranged to be ranked separately from the rest of the UAE in international economic and business surveys. For instance, the emirate aims to be ranked 20th by 2030 on the World Bank's list of the best countries in the world for doing business. In 2007, it was ranked 77th.

The Government will also begin collecting more accurate and up-to-date data on the emirate's economy. Unless it can provide more accurate information on consumer prices, money supply and credit growth, Abu Dhabi will remain under a cloud of economic uncertainty that has restricted growth, analysts say. "The quality, scope and disclosure of Abu Dhabi's official economic data are relatively poor, which hinders analysis," Moody's Investors Service said in a recent report.

The need for more timely information is evident in the report itself: Most of the macroeconomic and financial data it cites is at least two years old. The most recent inflation figure for the emirate is from March of last year, at 11.5 per cent. The Department of Planning and Economy has promised since September to release more recent information on inflation in Abu Dhabi. Economists throughout the region have viewed Abu Dhabi's economic data with scepticism. For instance, the basket of goods used to measure inflation has not been updated in years, even though spending habits have changed dramatically over the past decade.

The Department of Planning and Economy, which collects economic information in the emirate, is working in conjunction with Sweden's statistics agency to develop a more sophisticated data-collection capability. The report stresses the importance of preventing the return of inflationary pressures, despite the fact that maintaining the dirham's peg to the dollar effectively prevents the Government from exercising a fully independent monetary policy. Although inflation has slowed over the past few months, it could return again as a chief concern, analysts warn.

"Whenever you're growing quickly you're going to see upward pressure on prices," Mr Williams said. The Government's answer, it seems, will be to control inflationary pressures through means other than conventional monetary policy tools, including encouraging consumers to save rather than spend their cash to limit money supply. The Government will do this by providing more appealing ways to save over the long term, including the ability to invest in a more mature local bond market.

"A larger bond market would also help in this regard, locking away excess money supply and using it for more productive purposes while moving people away from short-term gains and high consumption patterns," the report said. [e-mail]