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Central Bank Impact on Economic Development, UAE

In this essay, we will discuss the impact of the central bank on the economic development of the UAE.

The Covid-19 pandemic has pushed the world economy into the most extensive shut down since the Great Depression of the 1930s. In October, the International Monetary Fund reviewed its forecast for the world economy higher to a recession of 4.4 percent, compared to its earlier prediction of 4.9 percent in June.

Central Bank Impact On Economic Development, UAE

The UAE, rolling out Covid-19 vaccines at the time and is the transportation and business hub of the middle east, is expected to bounce after a predicted contraction of about 6 percent in 2020 due to the impact of the Covid-19 outbreak and lower oil prices.

In terms of the real estate market in UAE, Dubai’s domestic property prices diminished on average 0.9 percent in the third quarter of 2020, the central bank announced, quoting data from the Dubai Land Department. Rents in the emirates maintained their descending drift, decreasing 6.9 percent in the third quarter, it said.

In Abu Dhabi, private property prices dropped 5.5 percent in the third quarter throughout the year but grew 0.9 percent from the corresponding quarter in 2019, the central bank stated. Moreover, Rents in the capital faded 3.9 percent in the third quarter, after a 4.9 percent dip in the preceding quarter.

In terms of remittances, outbound private transfers decreased by 7.7 percent compared to the corresponding season in 2019.

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Central Bank Policy to Boost economy

The UAE banking sector must deal with a negative economic outlook, including weaker oil prices and more soaring interest rates. The real estate sector is experiencing a correction, and liability levels amongst Government-Related Entities (GREs) still high. However, banks and primary corporates have essentially established their financial situations since 2011.

  • The CBUAE(Central Bank UAE) provided a relaxation package of Dhs100bn to handle the economic crisis that occurred due to the Covid-19 pandemic within the country.
  • The Targeted Economic Support Scheme(TESS) introduces Dhs50bn on zero-interest, collateralized credits for the country banks.
  • Besides, the UAE Central bank stated that Engaging banks must utilize the money to grant momentary support to the retail customers and private sectors for six months. Moreover, This scheme intends to lift the gross and interest returns on outstanding credits.
  • Furthermore, UAE Banks are expected to apply steady habits on lending and treat customers fairly.
  • Country banks were permitted to utilize up to sixty percent of the principal conservation cushion. Besides, the banks nominated as systemically significant by the federal administration could use a hundred percent of their extra capital cushion for systemic utility.
  • The CBUAE had decreased the amount mandated for banks by 15 to 20 percent. That is to operate loans over SMEs.
  • The central bank had increased the LTV(loan-to-value) rates by five percent, applicable for initial homebuyers.
  • Active March 15, and until October 2020, the CBUAE had also abandoned all charges for transaction services.

In November 2020, the central bank declared that it would increase the validity of essential components of the TESS until June 30, 2021. The span of the Zero Cost Facility (ZCF) of Dhs50bn extended for six months. This scheme benefits corporate banking consumers and retails.

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Impact of Central Bank on Economic Development of the UAE

The central bank action has acknowledged after the extent of the Covid-19 pandemic continues to wreck the global economy into crucial times.

  • The Central Bank strategy to lighten the pressure on industry finances during Covid-19 came at the best time.
  • The five percent LTV increment for initial customers was welcoming. That was demanding before the Covid-19 situation and had given buyers support to secure their very first property investment.
  • Consequently, We have seen so far that tenant registration levels, buyers registration levels, and transaction levels had not dropped.
  • Additionally, We can assume that the increment in LTV will provide an additional boost to the sentiment.

The economic incentive packages declared by regional and federal governments and the Targeted Economic Support Scheme (TESS) by CBUAE will help boost the economy. Those are likely to contribute confidently to the real estate prices, Index of Purchasing Manager, employment, and credit growth with a significant impact on the whole sentiment after the pandemic situation is under control.

These are the crucial impact of the central bank on the economic development of the UAE.

The present condition of the UAE economy in the international market:

The United Arab Emirates (or UAE) economy is the fourth highest after Turkey, Saudi Arabia, and Iran in the Middle East with a US$353.9 billion (AED 1.5 trillion) GDP (gross domestic product) in 2020 and expected to reach US$ 373.15 billion in 2021.

According to the IMF estimation, The government debt is flat but is increasing rapidly in the last three years. In 2018, it was 20.9% of GDP and reached 36.9% in 2020. The IMF predicts 38.2% GDP in 2021 and 39.6% GDP in 2022 debt level for the UAE government. However, the Central Bank of UAE and sovereign wealth funds possess valuable foreign assets. That will provide the country a liquidity buffer and make the UAE a net creditor globally.

In the last few years, UAE is expanding its oil-dependent market by developing valuable tourism and financial divisions. Recently, Abu Dhabi has funded the UAE’s first nuclear power station named Barakah Power Plant, which began producing power in August 2020. It will empower their energy sector and recognize them as nuclear power at the international level.

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