IMF lauds UAE for fiscal adjustments amid weak oil environment

The IMF has commended the UAE over the past years to “strengthen its medium-term frameworks for fiscal policymaking and risk analysis.” (Reuters)
Updated 17 July 2017
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IMF lauds UAE for fiscal adjustments amid weak oil environment

DUBAI: The UAE has been successfully making inroads adjusting fiscal policies to cope with the global weakness in oil prices, an International Monetary Fund study has affirmed.
The study, published by the IMF on its website, commended the progress made by the UAE over the past years to “strengthen its medium-term frameworks for fiscal policymaking and risk analysis.”
“Over the past years, local and federal governments have made progress in strengthening their medium-term frameworks for fiscal policymaking and risk analysis,” the fund said.
The fund particularly noted the spending program of the country’s two biggest emirates, Abu Dhabi and Dubai, which were associated with performance indicators.
“Abu Dhabi produces an internal medium-term fiscal outlook based on realistic oil price assumptions, which orientates its annual budget process. Dubai has a medium-term fiscal framework with three-year budget targets,” the fund said, which were broadly in line with global and regional trends.
The study was published as part of the IMF’s series of country reports, aimed at helping countries better align resource allocation with local and national developments plans under a consolidated Medium-Term Fiscal Framework (MTFF).
The IMF said that the drop in oil prices has highlighted the need to further strengthen the UAE’s medium-term fiscal frameworks.
“The importance of economic diversification has increased with the decline in oil prices. It has become more crucial to align fiscal spending with the goals embodied in the 2021 National Agenda and emirates’ agendas,” it said.
On Abu Dhabi, the fund suggested that long-term fiscal policy goals should be centered on intergenerational equity, which can be achieved by gradually reducing government spending or raising non-oil revenue while maintaining priority spending.
“As the non-oil economy increases, and the country becomes more independent from oil short-term vulnerabilities, a move toward structural balances should be appropriate. This would allow the government to make a policy choice regarding which rule is most appropriate, depending on investment spending needs and their projected medium-term impact on non-oil growth,” the IMF said.


World Bank shareholders approve $13 billion capital increase

Updated 22 April 2018
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World Bank shareholders approve $13 billion capital increase

  • Capital increase follows three years of negotiations
  • Increase of $7.5 billion for main institution and $5.5 billion for IFC

World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.