The Growth Forecast
The UAE Central Bank (CBUAE) in its December report projected a stronger economic growth of 4.2% in 2022 more than the previously estimated 3.8%. The UAE’s economic recovery is expected to strengthen further in 2022 and the country’s banking system can support the financial system and its growth, CBUAE said.
The banking regulator convened a meeting with chief executives of national and foreign banks based in the UAE on Thursday, 16th December 2021 and remarked just after the meeting saying that the Emirates’ banking sector also demonstrated resilience amid the covid 19 pandemic, helped by the CBUAE’s Targeted Economic Support Scheme (TESS).
The ongoing support of the local financial system by the CBUAE through the Tess scheme was welcomed by the chief executives.
Rapid and widespread Covid-19 vaccination and testing drive for mitigating the pandemic
played the most vital role in strengthening the economic growth rate, the CBUAE 2021 second-quarter review reported.
The UAE celebrated the Golden Jubilee of the Union in 2021. “Looking ahead, expectations on the role of the banking sector will increase further,” remarked H.E. Khalid Mohammed Balama, governor of the CBUAE.
The governor emphasized saying “The banks will be expected to contribute significantly to our nation’s far-reaching and ambitious agenda, and to become leaders not only in the region but also in the global financial industry.”
The Tess scheme has supported the banks in liquidity management during the economic crisis caused by covid 19 as the CBUAE provided a stimulus package of Dh 100 billion consisting of a direct Dh 50 billion fund infusion through collateralized loans at no cost.
Earlier, during October 2021 the Chairman of the UAE Banks, Abdulaziz Al Ghurair highlighted that the banking assets of UAE are expected to grow by 8 to 10% in 2022 as the country’s economy continues recovering from the pandemic-led slowdown and benefitting from hosting Dubai Expo 2020.
CBUAE stressed that the banks in UAE need to endeavour actively towards achieving full compliance with Consumer Protection Regulations and Standards as these measures would boost consumer trust in the banking sector and positively impact the UAE banking industry and the national economy.
Other Positives
UAE is all set to witness a steady increase in government’s public spending, improved credit growth, higher employment and better business sentiment in 2022, the CBUAE predicts.
The economic activities in the non-oil private sector registered faster growth during December 2021, the IHS PMI data showed. Data also revealed that increased new order booking continued to support the expansion of economic activities in this sector.
Crude oil price gained almost 60% in 2021 and has been found moving higher during the first three trading weeks of 2022. More than 5% gains were registered by the global benchmark indices including Brent and WTI in the first week of the year taking oil prices to their highest since November 2021.
“Year-on-year residential real estate sales prices in Abu Dhabi rose for a third consecutive quarter, following five years of decline while declining in Dubai at a marginal pace. Both, the dirham effective nominal and real rates depreciated on a year-on-year basis due to lower inflation compared to main trading partners and in line with the US dollar trend,” the central bank highlighted.
Data released by the CBUAE also revealed that total bank deposits increased on both a yearly and quarterly basis. The rate of yearly Gross credit contraction also eased and registered moderate growth.
CBUAE also reported that on the back of economic recovery, financial soundness indicators remained mostly satisfactory.
Reforms- The Growth Enablers
2021 remained the year of reforms for UAE and the country, the 2nd largest economy in the Arab world witnessed numerous policy and administrative changes in legal, economic and social structures. All these reforms focused on enhancing the country’s business landscape, boosting foreign fund flow, acquiring high skilled professional and technical talents and providing incentives to companies for doing business in Dubai and UAE as a whole.
Some important reforms included changes in personal and labour laws, widening of longer-term residency visa rules, granting of 100% foreign ownership for onshore companies and very recently, the changing and shortening of workweek schedules in alignment with major economies in the world.
The cabinet also approved new regulations concerning industrial property law to further promote the intellectual property rights and patent registration process.
The new industrial property and patents law assumes particular importance in providing benefits to investors and academic institutions. R&D facilities, SMEs startups and technology companies are going to benefit the most.
All these reforms are designed for improving the business, investment and overall economy of the country. Garbis Iradian, Chief Economist, International Institute of Finance remarked, “New regulations could further help increase foreign direct investment to around $26 billion in 2022, one of the highest in terms of GDP among emerging and developing economies.” He also emphasized, ” These measures will boost efforts to diversify further the UAE’s hydrocarbon dependent economy, improve the business environment, make the economy more competitive and efficient, and thus raise potential growth.”
“In 2020, World Bank ranked the UAE among the top 16 countries out of 190 countries in terms of ease of doing business. I expect the announced measures or approved new regulations will improve further the UAEs business environment and rank the emirates among the top 10 best countries in the World in terms of ease of doing business by 2023. The manufacturing and trade sectors will benefit most,” the Chief Economist commented.
Dubai Budget 2022
Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, approved a general budget for the fiscal cycle of 2022-2024 with a total expenditure of Dhs 181 billion. Dhs 59.95 billion expenditure has been budgeted for 2022 with an operating surplus of Dhs1.8 billion representing 3% of the expected total revenue.
The Dubai Government continues its journey to realize its future goals of an accelerating economy and enhancing its business competitiveness by consolidating its position as a leading global commercial hub to attract foreign investors for company formation in Dubai.
The Takeaway
Besides CBUAE, most of the industry experts, entrepreneurs and financiers are very upbeat about UAE’s stronger economic growth in 2022 in light of the Expo and growth in the real estate, banking, finance and tourism sectors compared to the previous years. The government has also done lots of positive work in the last 12 months in terms of regulatory reforms and investments in the economy.
UAE with its world-class infrastructure, business-friendly policies, rich and attractive social life and the credible labour market is expected to attract high levels of FDI flow in its economy. The UAE authorities have been relentlessly striving for a diversified and knowledge-based economy and continuing its focus on a broad range of policy reforms, clean and renewable energy, innovative technologies and the fourth industrial revolution to accomplish socio-economic goals.
