On Wednesday, the International Monetary Fund, in a published Public Information Notice, summarized the Executive Board’s discussions of the annual Article IV Consultation for the United Arab Emirates (UAE), which took place on February 3, 2010.
The Board noted that, despite a series of external and domestic shocks during 2009, the growth prospects for the UAE economy,”given its uhnderlying strengths, remain favorable.” The Executive Directors did emphasize, however, that it was important for the UAE to “embark on a more balanced and sustainable growth path over the medium term.”
While the Board commended the UAE authorities for steps taken throughout 2009 to strengthen confidence in the banking system, including injections of capital and pledges to lend money to Dubai banks, they “stressed the importance of a speedy, orderly, cooperative, and predictable approach to [the Dubai World] debt restructuring.” The Board urged that the process should “seek to enhance transparency and information disclosure as well as ensure comparability of treatment among the creditors.”
Looking beyond the immediate issue of restructuring of the Dubai World debt, the Board recommended that the UAE undertake “vigorous efforts” to restructure other government-related entities (GREs), incuding “formulating exit strategies for nonviable corporations,” and stressed the need for the authorities to articulate a plan for dealing with the potential for increased loan losses in the banking sector, including “introducing general loan provisions, enforcing more uniform provisioning and loan classification standards, and further strengthening capital buffers.”
Noting that fiscal policy will continue to be an important factor in supporting economic activity, the Directors heralded initiatives to improve policy coordination at the federal level and encouraged the authorities to rationalize investment decision at this level going forward. Finally, the Board counseled that authorities increase transparency of economic and financial data including financial accounts and business strategies for GREs, as such increased transparency will facilitate access to capital markets for viable GREs.