The Institute of International Finance (IFF) said on Saturday that the UAE needs a new growth model “in the face of prolonged low oil prices and an overvalued exchange rate.”
However, despite weaknesses in the construction and wholesale and retail trade sectors, the IFF expects nonhydrocarbon real GDP growth to increase to 1.9 and 2.2 percent in 2019 and 2020, respectively.
Growth in the UAE will be buoyed by Abu Dhabi’s three-year stimulus package and Dubai’s Expo 2020-related spending, the IFF added. From 2020 and beyond, growth may ease to less than two percent as the impact of Abu Dhabi’s stimulus package and Expo 2020 fades.
Non-oil growth averaged 6.4 percent between 2000 and 2015, driven by construction and service-sector growth. As growth has slowed, UAE authorities have set goals for encouraging a more diversified economy.
“There is a need to strengthen the ecosystem for new entrepreneurs to bring added dynamism to the Emirates,” the IFF said.
Access to finance remains one of the main constraints of SME growth. Over 75 percent of SMEs do not have access to adequate credit with SME lending accounting for less than five percent of total loans, the report said.
“In this regard, a comprehensive strategy is being prepared to encourage foreign direct investment outside free zones and energy sectors and to expand non-bank and capital market financing options for SMEs, which could boost private sector growth and promote diversification,” the IFF added.