Economic Growth In The United Arab Emirates Economics Essay

In the world of today there is a high level integration of businesses and national economies. The geographical boundaries that exist are becoming less important in the movement of trade fostering international relations but also bringing with it; its own limitations.

Globalization according to the World Bank; is the growing integration of economies and societies around the world. Due to the effects of globalization, there is an increase in the synchronization of national business cycles i.e. the economic trends in one country or region would in many cases have an impact on other national economies that interact with it.

The UAE consist of seven Emirates including Dubai, Abu Dhabi, Sharjah, Ajman, Al-Fujayrah, Al-Qsywayn and Ras Al-Khaima, which is under the governance of Federal Supreme Council (FSC). Among all these, Abu Dhabi and Dubai are the wealthiest and can influence the UAE economy. UAE is rich and open economy with a high per capita income and a huge annual trade surplus. . After the discovery of oil in the UAE around 30 years ago, the UAE have achieved a drastic change in its economy and moved towards modernization and achieved a very high standard of living. The most of the revenue in UAE is derived from higher oil prices and real state.

The objectives of this essay are to:

Evaluate the current phase of economic growth in the UAE

Address factors contributing to the contraction of the economy

Highlight some methods which the government is attempting to manage the economy considering the current public sector debt & deficit

INDICATORS

Indicators are various statistics used in an economy to assess all the financial activities such as selling of products and services in a country, thus helping economic analysts or policy makers to predict the future of the economy and measure its performance.

Table1

Variable: Gross domestic product based on purchasing-power-parity (PPP) per capita GDP

YEAR

GDP IN BILLIONS OF CURRENT DOLLARS

GDP %AGE CHANGE FROM PREVIOUS PERIOD

1989

18895.597

15.58 %

1990

24459.165

29.44 %

1991

24686.45

0.93 %

1992

24884.972

0.80 %

1993

24012.941

-3.50 %

1994

24446.903

1.81 %

1995

24515.637

0.28 %

1996

25982.622

5.98 %

1997

27022.883

4.00 %

1998

24909.517

-7.82 %

1999

24358.845

-2.21 %

2000

28322.462

16.27 %

2001

27853.785

-1.65 %

2002

27475.741

-1.36 %

2003

29616.723

7.79 %

2004

32003.253

8.06 %

2005

33292.717

4.03 %

2006

36510.918

9.67 %

2007

37631.96

3.07 %

2008

38893.684

3.35 %

2009

38283.571

-1.57 %

Source: International Monetary Fund

Source: International Monetary Fund

From the graph it can be deduced that, for the past twenty years (1989-2009) the highest percentage change was in 1990 with 29.44%, thereafter there is a sudden fall in the economy. The economy handled the collapse well through swift government policies and the market started to recover quickly

BUSINESS CYCLE

The cycle of economic growth and decline. There are four stages in the business cycle: expansion, growth, contraction and recession.

In starting stage of a new business it starts growing n slowly by using its all manpower n resources it reaches to peak point, where it earns maximum profit, but after some time, it starts declining, profits start changing into loses, but then business lesser down its costs and go into last stage that is recovery stage,

Same is going in case of UAE Economy , in starting years, it s growing with faster rate, then it reaches to peak in 1990, and after some years it starts declining and now its in its trough stage,, now its time it should try some new methods to grow up, and recover its economic level

UAE INFLATION RATE

The inflation rate in UAE was 11.10 percent in January of 2010.

The rate at which the cost of widely available goods and services increases in the marketplace. The inflation rate is usually calculated as an annual or monthly number.

UAE UNEMPLOYMENT RATES

The unemployment rate in UAE is 20.60 percent in January 2010.

The unemployed rate referred as the number of unemployed as a percentage of the total workforce.

Country

Interest Rate

Growth Rate

Inflation Rate

UNEMPLOYMENT Rate

UAE

1.72%

23.25%

11.10%

20.60%

SOURCE: UAE MINISTRY OF TRADE

WWW.TRADINGECONOMIES.COM

The International Monetary Fund (IMF) has lowered its growth forecast for the economy of the United Arab Emirates (UAE) this year to less than 1 per cent amid continuing fears over the impact of Dubai’s debt crisis.

In 2010 the effect of the Dubai World restructuring and lower property prices will be a drag on growth for Dubai and the UAE,” Masood Ahmed, the IMF’s director of the Middle East and Central Asia, said.

In October the IMF issued an estimate of 2.4 per cent growth for the UAE this year, but has revised this down in the wake of the Dubai World debt crisis that began in late-November, and the continued stagnation of the emirate’s once-booming property market.

Mr Ahmed said that the IMF expects that economy of Dubai to contract slightly this year, balancing by marginal growth in Abu Dhabi.

For 2010 overall expectation of GDP growth will be about flat, between zero to 1 per cent for the UAE.

Mr Ahmed said that he was encouraged by the steps taken to restructure Dubai World, with a six month freeze on all payments to the creditors, with a expectation to sell a number of key assets in order to balance the books.

Source: TIMES ONLINE

FIGURE: 2

THE BASIC CURRENT FLOW OF INCOME

Circular flow of income

In this simple economy, households spend all their income on consumer goods as soon as they receive it and firms sell all their output to households as soon as they produce it. Goods and services flow clockwise and the corresponding payments flow counter clockwise.

In total, we believe that the debt of Dubai’s GREs currently stands at around US$89 billion, or 116% of the emirate’s GDP. The debt is split among the emirate’s three largest holding companies, with Dubai World and the Investment Corporation of Dubai accounting for the largest shares, although the latter arguably holds a number of companies with high franchise values. In sum, Dubai’s public sector debt – which includes that of the government and its related entities – is estimated at around US$108 billion, or 140% of GDP. However, these estimates may overstate the real debt burden on the public sector, since they don’t take into consideration the assets held by these GREs, on which there is unfortunately little information.

Dubai’s fiscal revenues are dependent on fee and oil income. As of 2008, tax income – mainly related to customs fees and limited corporate taxes (e.g., tax on foreign bank income) – accounted for no more than 23% of overall government revenues. Conversely, proceeds from oil exports made up around 26% of government revenues. Non-customs fees – including those levied on road use and real estate – accounted for about 45% of total fiscal revenues. The latter are estimated to have dropped by about 15% in 2009, mainly due to the: (i) significant decline in Dubai’s real estate sector in 2009; (ii) slowdown in domestic spending; (iii) negative population growth; and (iv) lower oil prices.

As such, we expect public spending to decline by about 6% next year. Current expenditures, which make up about 60% of government spending, should drop slightly in 2010.

On balance, we expect the fiscal accounts to register a deficit of about 4.5% of GDP in 2009 and 2.9% in 2010

SOURCE: A Closer Look at Dubai’s Debt

Conclusion:

As it is evident from the above discussion and data that till 2008 UAE was an prosperous nation but an comedown in UAE economy is noticed since autumn of 2008 and suffers many problems like decline in its growth, significant inflation, shrinking budget surplus because of low oil revenue, fall in its currency .These all factors creates imbalance in economy.

The UAE strategic plans should be focused towards diversification and creating more opportunities for nationals through improved education and increased private sector employment. UAE need to focus more on its tourism sector and its leading destination in order to pull more business in future. UAE government should introduce more open policies to attract foreign investors. If wise and timely policies are made by fiscal and monitory management, the UAE can soon get the rid of inflation.