‘An outward-oriented development strategy and prudent financial policies have resulted in impressive economic growth over the years and have led to a large accumulation of external financial assets,’ says the IMF. ‘All indications are that the liberal economic policies followed thus far will be broadened and accelerated in the period ahead.’

The IMF report said that economic growth was impressive, driven by high oil prices, increased production, strong investor confidence and a sharp rise in foreign direct investment. ‘Preliminary data for 2005 indicates that real non-hydrocarbon GDP [gross domestic product] grew at 11 per cent, while the hydrocarbon sector registered a growth rate of 2.1 per cent,’ says the report.

‘Growth was broad-based, with most sub-sectors growing at historically high rates, especially in manufacturing, real estate and construction However, inflation has been on the rise driven by the strength of domestic demand, a hike in gasoline prices and a significant increase in the price of non-tradeables such as rents and services,’ says the report. ‘Both the external current account and overall fiscal balances are estimated to have recorded large surpluses in 2005.’

However, the IMF continued to criticise the federation’s lack of economic transparency. ‘Limited improvements have been made in the UAE’s economic and social statistics, which continue to suffer from numerous structural weaknesses with respect to data quality, coverage, periodicity, timeliness, and inter-sectoral consistency.’

The report also pointed out the risks to the banking sector of the recent stock market correction. ‘However, [the directors] cautioned that increased lending for real estate and equity financing has led to a rise in credit risk, and stressed that banks’ direct and indirect exposure to these markets and the increased loan concentration in a few large business groups call for close monitoring by the central bank,’ it says. ‘Directors highlighted the urgent need to define the responsibilities of the various entities involved in regulating the capital markets and its participants. Directors stressed that the pricing of IPOs [initial public offerings] should be set by the market through professional underwriters based on an appropriate company valuation.’

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