Dubai, the emirate that teetered on the brink of default during the global recession, is weathering the economic slowdown afflicting its oil-rich Gulf neighbors, according to the International Monetary Fund.
While economic expansion in the Middle East’s financial and transport hub is set to moderate to 3.3 percent this year, domestic investments — boosted by preparations for hosting the international trade fair Expo 2020 — will drive a “rapid acceleration” to more than 5 percent by 2020, said Zeine Zeidane, the fund’s mission chief to the United Arab Emirates.
That contrasts with the outlook for oil-reliant neighbors who have slashed spending in response to the crude-price decline. Abu Dhabi, the richest of the U.A.E.’s seven sheikdoms, may be tightening its belt too fast: The IMF expects its economic growth to slow to 1.5 percent this year from 4.3 percent in 2015.
Dubai, home to Emirates Airline and the world’s tallest skyscraper, borrowed tens of billions of dollars to build an economy reliant on trade, transport, finance and construction. After a spell of breakneck growth, the edifice threatened to come crashing down when the global financial crisis pushed the real estate market into a slump and took Dubai to the brink of default. Authorities have since tightened regulations and repaired the emirate’s public finances.
Dubai’s “diversified economy” is helping it to overcome the negative impact of lower oil prices felt by other regional exporters, Zeidane said. Its safe-haven status in a region “ridden by conflict,” a weaker dollar and the strong performance of trading partners such as India are also supporting the economy, he said.
The IMF expects the U.A.E.’s economy to expand 2.3 percent this year. The subdued pace is largely due to the projected slowdown in the capital Abu Dhabi, home to 6 percent of global oil reserves and the world’s second-largest sovereign wealth fund.
“Abu Dhabi has delivered strongly on fiscal consolidation in 2015,” Zeidane said. Abu Dhabi and the U.A.E. as a whole “have large fiscal buffers that provide them with policy space to adjust to new market conditions, and they should use the fiscal space they have.”