DUBAI: The United Arab Emirates is set for a gradual economic recovery, thanks in part to its strong response to the coronavirus crisis and a rebound in tourism, the International Monetary Fund said, but the risk of a pandemic resurgence clouds the outlook.
The Gulf's second largest economy suffered a deep recession last year as curbs against the COVID-19 pandemic hurt vital sectors such as trade and tourism, while record low oil prices weighed on petroleum revenues.
The IMF estimated a contraction of 6.1% in gross domestic product in 2020, but said the recovery had begun to gain momentum.
"A gradual recovery is expected in 2021, supported by the UAE's early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020, set to begin in October," the IMF said in a statement on Thursday.
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Last week, the UAE central bank said it expected economic growth of 2.1% this year, with non-hydrocarbon growth of 3.8%.
The IMF said non-oil GDP growth could exceed 3% this year and higher crude output would support the oil sector, while higher oil prices would lift fiscal and external balances.
"Nevertheless, uncertainty around the recovery remains globally and in the UAE, and the overall balance of risks is tilted towards the downside, with a resurgence of the pandemic the key source of risk to the outlook," it said.
Liquidity in the UAE banking system remains strong, but banks' assets quality has weakened and further impact of the crisis on their balance sheet may still lie ahead, the IMF said.
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The Gulf state's policy responses to the crisis are appropriate, but going forward support should be increasingly targeted to those most in need, it added.
The UAE has recently sped up the pace of reforms aimed at attracting skilled professionals and boosting trade and foreign investments. These measures should be prioritised and sequenced to ensure effectiveness and inclusive growth, the fund said.