Abu Dhabi outlines economic plan |
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Abu Dhabi will draw a new regulatory framework to help improve its financial institutions and capital markets, making them less prone to external influences, according to a long-term economic plan for the emirate released yesterday.
The plan, released by the Executive Council of Abu Dhabi, is a 142-page document outlining the emirate's economic and social vision for the next two decades.
According to the report, titled Abu Dhabi Economic Vision 2030, the emirate will take active measures to keep inflation in check with several crucial objectives.
"Through co-operation with federal stakeholders, Abu Dhabi will seek to ensure an efficient and independent regulatory framework. A more sophisticated regulatory and supervisory framework for the insurance industry needs to be introduced to foster its growth and positive influence on the economy. Equally, the government will help create more opportunities for banks to finance capital projects and optimise the personal loan market," the report said.
It also said that since 2000, commercial banking assets in the UAE have grown at an impressive rate, outclassing that of many other transformational economies, and is now at par with the rate recorded by China.
The report identifies two key priority areas for economic development in Abu Dhabi - building a sustainable economy, and ensuring a balanced social and regional economic development approach that brings benefits to all.
Nassir Al Suwaidi, Chairman of the Department of Planning and Economy, who is also an Executive Council member, said: "The plan provides a clear road-map for the ongoing evolution of Abu Dhabi's economy. The plan seeks to harness the emirate's assets and resources to ensure the economy continues to grow sustainably while delivering significant benefits to the entire community."
Another senior member, Waleed Al Mokarrab Al Muhairi, who is Director General of the Abu Dhabi Council for Economic Development, said the government has consulted widely with the local business community and key international partners in the development of the plan, which, he added, provides unprecedented insights into the government's transformational plans to strengthen and diversify the emirate's economy. "Both the public and private sectors must work together to ensure that the ambitious vision is fulfilled," he said.
According to the Executive Council, the next phase of the plan as outlined in the document will be the development of a five-year economic strategy and a 12-month action plan, which will provide a focused framework for the implementation of Abu Dhabi Economic Vision 2030. There will also be regular assessment periods to judge the emirate's progress and enable necessary adjustments to be made.
To tackle any impact of the worldwide financial crisis, the measures in the plan include more effective monetary policy tools to influence money supply and prices and rein in imported inflation.
"New savings instruments will be introduced and a local mechanism organised that will help to absorb excess liquidity in the economy and put it to more productive use in generating growth engines."
Banks will be encouraged to invest their capital through foreign channels to negate the effects of excess liquidity in the local system and further reduce domestic inflationary pressures.
In addition to the adoption of a more proactive monetary policy, close attention will be given to the supply and demand of goods and services - mainly housing stock - with high impact on CPI.
Under the long-term plan, the government will also consider other fiscal sources in order to reduce its reliance on unstable oil revenues, while not affecting the emirate's strategic positioning as a favourable tax environment and attractive investment destination, the report said.
"New fiscal revenue sources will be identified and stable sources, such as government bonds, will be used to finance the budget. The aim is to decouple government finances from oil revenues and to maximise the government's future spending power."
According to the report, for the past 30 years, Abu Dhabi has maintained a prudent fiscal policy in which oil revenues are used to balance the emirate's budget and finance development. "Surpluses have been invested through the Abu Dhabi Investment Authority (Adia)Abu Dhabi Investment Authority (Adia)
to be drawn upon in times of deficit. As a result, the emirate began the 21st century in a strong financial position, with no external debts, a large savings account and increasing fiscal surpluses," it added.The report said oil revenues have remained the emirate's primary source of fiscal revenue, accounting for 74 per cent of income between 2000 and 2005, and as the oil price has risen, this proportion has increased to as much as 84 per cent, contributing to a reported surplus of $5.8bn in 2006.
"While oil prices are high fiscal revenues remain buoyant, but when the oil price dips the fiscal balance falls into deficit, requiring injections from AdiaAdia
to maintain the zero-deficit policy followed since 1993."Official government financials do not include AdiaAdia
's portfolio. Only transfers from AdiaAdia to the public budget on an as-needed basis are included in the public account maintained by the Department of Finance. Oil has historically formed the bulk of Abu Dhabi's economy. "While Abu Dhabi has a healthy overall trade surplus, the emirate has a 'deep' non-oil trade deficit which reached about $21bn in 2006. Economic diversification is a key pillar of the Economic Vision 2030 and the emirate is setting ambitious targets for the performance of the non-oil sector," the report said.
By Nissar Hoath
© Emirates Business 24/7 2009
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