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Talks of bouncing back
The UAE needs a stimulus plan worth AED110 billion to bounce back, Standard Chartered Bank said yesterday. Why does the government keep insisting that all is well if bankers are talking about stimulus plans?
February 17, 2009 1:06 by Dana El Baltaji
The UAE’s economy can grow by as much as 0.5 percent in 2009 if the government increases its public spending and if AED110 billion is injected into the banking system to help boost lending, said Standard Chartered Bank.
“First, the Government must increase its expenditure substantially, and second, it needs to address the liquidity issue,” said Marios Maratheftis, the regional head of research at the bank.
Unlike other developing nations, the UAE reported a 30 percent budget surplus, providing the country with much needed capital during times of crisis. “We are entering this downturn from a position of relative strength,” Maratheftis said. “When you run surpluses you have to save for a rainy day. So we have an umbrella that can save us from rain, but we have to open it.”
Maratheftis also mentioned that real estate should not be the nation’s only and strongest industry. By the end of 2008, 75 percent of projects announce in the UAE were in the real estate sector. Consequently, when the financial crisis hit, project cancellations in Dubai alone reached $75 billion according to HSBC’s report, and $263 billion according to Morgan Stanley.
“Real estate should not be the main driver of our economy, but we should invest in productive capacity of the economy in education, tourism, financial services and trade,” he said. “We must return to where we started.”
What continues to baffle Kipp are the varying comments made by bankers and government officials. While Marwan bin Ghalita, CEO of the Real Estate Regulatory Authority (Rera) insists that no projects have been delayed or cancelled in Dubai, and that the numerous media reports on the sector’s decline are false, bankers are advising the government to diversify the nation’s industries, stating that the real estate sector’s decline is dragging the whole economy down.
In other words, if the government needs to inject AED110 billion into the banking sector in order to boost the economy, how badly was the sector affected by the financial crisis?