Abu Dhabi stimulus will revive economy
New initiatives to boost spending that will spur growth show determination to fight global headwinds
The Government of Abu Dhabi’s decision to inject Dh50 billion into the economy over the next three years comes close on the heels of other stimulus packages announced in Dubai and at a federal level. It reinforces the UAE authorities’ commitment to support the economy that has been facing local, regional and global headwinds.
The economic logic of a fiscal stimulus is a straightforward application of the basic macroeconomic theory to boost aggregate demand when it falls short. Factors of production can be unemployed and or underemployed if private businesses do not expect to sell enough to justify the full use of resources. To solve this critical problem, demand must increase. When private spending is not adequate, governments can step in to stimulate demand and thereby raising both employment and production.
Abu Dhabi has opted for a twin strategy of incentives through direct government spending and/or augmenting of ease of doing business through fee rebates and reducing licensing requirements. The government has exempted new licences from the prerequisite of a two-year office, permitted home licences, and allowed most commercial licences and all services provided by the Abu Dhabi government to implement the online licensing system.
These initiatives aim to stimulate key non-oil sectors such as travel tourism, retail construction and infrastructure projects. According to data from Meed Projects on project awards in the GCC for the first quarter of 2018, the value of UAE projects awarded remained solid and markedly above the two-year average in the first quarter of 2018. Total awards in value terms were up 29.5 per cent year-on-year in the first quarter with both Abu Dhabi (up 97.3 per cent) and Dubai (up 7.8 per cent) seeing a solid increase.
Incentivising the economy through higher spending at a time when some key sectors, such as small and medium enterprises, real estate, tourism, wholesale and retail are stressed by macroeconomic headwinds, is a move that needs resources, determination and political will. The UAE has been largely resilient to the impact of the prolonged oil price slump. Following the recent rise in oil prices, there is a sense that the worst is behind the UAE’s economy and confidence is gradually returning.
While several high-frequency economic indicators, including retail sales and number of tourist arrivals over the past few months, suggest improvement in sentiment and private sector activity in Abu Dhabi after two challenging years that saw deep cuts in government spending, the new initiatives to boost spending will undoubtedly spur economic growth.