The UAE is expected to enjoy growth of up to 5 per cent this year, on the back of higher oil prices and an increase in non-oil activity. The bullish forecast comes on top of the 2.9 per cent rise in gross domestic product (GDP) recorded in 1994 and lends further credence to the claim that the federation has the best performing economy in the GCC.

Oil continues to be the pilot of the UAE economy, accounting for about a third of total GDP. This year, oil revenues are projected to rise to just under $13,000 million - up from the 1994 figure of $12,300 million - as a result of firmer oil prices. The performance will inevitably bolster export earnings and consolidate the current account surplus, which in 1994 dropped by half to $450 million.

The balance of payments situation will also be helped by a continuing rise in re-exports. In the first six months of 1995, total re-exports out of Dubai rose by 7.3 per cent to $1,582 million, compared with $1,473 million in the corresponding period of 1993. The increase was achieved despite a 22 per cent fall in re-exports to Iran, Dubai's most important trade destination, and a slight drop in volumes to Saudi Arabia. Slack demand in both countries was more than offset by increased trade with India, Hong Kong, Qatar, Pakistan and Somalia.

The improved economic climate has been reflected in higher demand for credit. In the second quarter of 1995, domestic lending by banks operating in the UAE grew by $1,420 million to $19,537 million. Much of the increased lending in the March-June period was to the private sector. At the end of June, loans outstanding to business stood at $18,620 million.

Details about government budgets in Abu Dhabi, Dubai and Sharjah are still kept under wraps, although judging from the levels of infrastructure and construction activity, spending is being maintained. As for the federal government, it has continued with its tradition of releasing half-yearly updates on spending and revenues. The latest bulletin covering the first six months of the year, showed that an improvement in revenues, coupled with a tight grip on expenditure, led to a surplus of $232 million. This was well ahead of budget, which had projected a deficit of $288 million for the whole of 1995.