UAE growth forecast slashed by World Bank

The global lending institution said that while oil-dependent Arabian Gulf nations had made moves to raise cash to make up for the budgetary shortfalls, that such efforts would not completely plug the gap.

The World Bank downgraded its expectations for global growth to 2.4 per cent from 2.9 per cent in 2016. Pictured, Abu Dhabi. Silvia Razgova / The National

The World Bank yesterday cut its growth forecast for the UAE by 1.1 percentage points to 2 per cent this year amid low oil prices and budgetary spending cutbacks.

The revision comes after an estimated 3.4 per cent growth in 2015 for the UAE.

The global lending institution said that while oil-dependent Arabian Gulf nations had made moves to raise cash to make up for the budgetary shortfalls, such efforts would not completely plug the gap.

“Modest efforts to expand revenue have also been implemented, including raising corporate and consumption taxes, but in the short term will not make up for large revenue losses in 2015 from plummeting oil prices,” the bank’s report on the world economy stated.

“Increasingly, governments will rely on domestic and international debt issuance to finance deficits.”

The emirate of Abu Dhabi sold US$5 billion in sovereign bonds in April for the first time since 2009 as Arabian Gulf governments turn to debt markets amid a weaker oil price. Abu Dhabi has also been trying to diversify its economy away from relying on revenues from hydrocarbons.

Abu Dhabi’s private sector accounts for 27 per cent of the economy, a figure the government is hoping to boost to at least 40 per cent by 2030.

The UAE has also reduced subsidies on petrol and diesel and is also planning to introduce value added tax as part of a wider GCC initiative to find other forms of revenue to support budgets.

The push to diversify comes at a time when many Arabian Gulf countries are seeking to transform their economies, especially countries like Saudi Arabia that are even more reliant on oil.

The wider Arabian Gulf region could gain US$17.7 billion if its average diversification matches the OECD level, which is more than three-quarters of entire foreign direct investments in the GCC in 2013, according to the consultancy firm EY.

Elsewhere in the Arabian Gulf and the wider Middle East, the World Bank reduced its forecast for growth for similar reasons, but as a whole said the region’s economic growth in 2016 was likely to rise to 2.9 per cent from 2.6 per cent in 2015 on improving prospects of economic growth in Iran amid easing of sanctions against the Islamic republic.

It warned, however, that risks in the Middle East were still high.

“Risks to the growth outlook for the Middle East and North Africa are mainly to the downside,” the bank said. “Three risks stand out: a further slide in oil prices, escalation of conflict, and further negative effects of security challenges and social unrest in countries not entrenched in war.”

The bank is forecasting an average oil price of $41 per barrel for 2016, $50 for 2017 and $53 for 2018.

The World Bank also downgraded its expectations for global growth to 2.4 per cent from 2.9 per cent in 2016 amid sluggish growth in the developed world and low commodity prices holding back prospects in the emerging world.

Follow The National's Business section on Twitter