Dubai Economic Council crisis meeting
Posted on 09 March 2009 with no comments from readersOrder my book online from this link
The Dubai Economic Council met last week to discuss its response and the following is a statement issued after the meeting:
The Dubai Economic Council recently convened a board meeting in its headquarter at Dubai Chamber. The meeting chaired by HE Juma Al Majed Chairman of Dubai Economic Council, in the presence of HE Sultan Bin Nassir Al Suwaidi Governor of the UAE Central Bank, HE Mohamed Bin Abdul Aziz Al Shihi, Director General of the Ministry of Economy on behalf of HE Eng. Sultan Bin Saeed Al Mansouri Minister of Economy, and HE Nasser Bin Hassan Al- Shaikh, Director General of the Department of Finance in Dubai. The meeting was also attended by a number of DEC’s members, and HE Hani Rashid Al Hamli Secretary General of DEC.
HE Juma Al Majed welcomed DEC’s guests and members, assured the importance of this meeting to review the DEC’s members viewpoints on the impacts of global financial crisis on the local economy. He also praised the UAE Central Bank and federal government initiative to support the national economy under the financial crunch. Al Majed stressed that “no need to great deal efforts..instead, just immediate actions to restore the confidence in the local market”.
Al Majed also shed lights on the role of Central Bank to confront the global crisis, especially its initiative to inject liquidity AED 50 billion as a first step, and buying the first issue of bonds $10 billion made by the Government of Dubai, namely it’s considered to be a step in a series of initiatives and policies adopted by the government to restore the growth in the local economy.
UAE Central Bank’s Governor
HE Sultan Bin Nasser Al Suwaidi, UAE Central Bank Governor discussed the present situation of UAE economy under the financial crunch. He commenced debate with fundamentals of the national economy especially the banking sector.
Al Suwaidi stated that since early 2007 and mid 2008 huge amounts of hot money inflows into the UAE for speculation on Emirati Dirham under expectations the change in “begging” regime. Therefore the local liquidity has been increased remarkably.
Meantime, the local banks increased its lending to corporate and consumers especially during the boom in infrastructure and construction projects. The UAE Central Bank absorbed a part of this liquidity in terms of “sterilization” process through CDs issuance and invested outside the country.
But, when the Government declared the continuity of “beg” regime and no appreciation of dirham, coupled with liquidity crisis in the US and global financial system under the global financial crisis, the foreign investors in the UAE withdrawn their “hot money” from local banks and transfer it outside, therefore a sudden lacks happened, reflected in banks gap (difference between credits and deposits) about AED 110 billion.
Al Suwaidi also confirmed that the global economy witnesses slowdown in 2009 but not necessarily all economies will experience the same extent. “this would involve the local business community to caution and to accommodate their businesses to low income under low economic growth expectations” he added.
Though, Al Suwaidi reviewed some positive indicators in the national economy. “the business index experienced negative in June 2008 then became positive in January 2009″ he confirmed.
Regarding the most important steps taken by the Central Bank, Al Suwaidi highlighted AED 50 billion allocated by the Central Bank in the current account to be withdrawn by local banks. Additionally, the Central Bank advocated swap and Repo, and placed discount system on bonds issued by local governments and some companies, the step helped creating liquidity by banks.
Al Suwaidi pointed out “the present situation requires stimulates package to the banks and economy in order to improve the reputation of local banks outside the UAE, and hence, it would encourage more foreign investments to deposit money into the local banks”.
The Governor also highlighted the arrangements the Central Bank did with the Ministry of Finance in compliance with the cabinet directives to support the banks with AED 70 billion through issuing bonds.
HE Mohammed Al Shihi
HE Mohammed Bin Abdulaziz Al Shihi, Director-General of the Ministry of Economy reviewed the ministry’s strategic plan. Al Shihi confirmed that the meeting is a link between the Ministry and various economic activities to conclude some significant recommendations to enhance the national economy and confront the impacts of global financial crisis.
Al Shihi also reviewed the economic expectations 2009 especially the IMF reports which revealed that 2009 would be hard for the global economy because of the slowdown and recession most countries suffer, including the advanced economies (USA, Japan, China, Germany, etc). Al Shihi highlighted the impacts of financial crunch on the national economy.
In regard to the policies advocated by the government to confront the crisis, Al Shihi stated a ministerial committee has been formed to study the financial and economic situation, and forward urgent recommendation to the cabinet, in addition to the policy taken in 2008 to allocate AED 50 billion urgently to the banks, the Central Bank’s action to cut the interest rate by 1.5%, deposits guarantee, and the government’s step to assign AED 70 billion to support the liquidity.
Al Shihi confirmed the several meetings made by the Ministry with various activities to manipulate their recommendations and suggestions and forward them to the authorities concerned. Those include forming an emergency committee to tackle with economic challenges, activate the monetary and fiscal policies through the Central Bank, deposits into the banking system, long-term government savings in local banks, etc.
Regarding the strategic aims he proposed to achieve in the federal and local levels, Al Shihi pointed out the importance of estimating the impacts of the crisis on the national economy, and reprioritizes the economic strategy, smooth the crisis impacts in all means, and enhance the confidence in the market.
Regarding the mechanism required, HE Al Shihi stressed the importance of high liquidity availability to support credits for both investors and consumers, forming a federal-local intuitional framework aims to realize the highest level of coordination in economic and strategic policies, and to take prompt and active regulations.
Nasser Bin Hassan Al- Shaikh
HE Nasser Bin Hassan Al- Shaikh Director-General of the Department of Finance presented the budget approved by the department for financial year 2009, including the development in public spending 2002-2009/ he also shed lights on the developments in public and capital expenditures and infrastructures projects.
Al Shaikh also showed the sources of public revenues and expenditures, and the sectorial distribution of public spending.
Al Shaikh made a comparison between Dubai and GCC state members regarding the deficit and surplus and some relative indicators in 2009.
HE Nassir Al Shaikh stressed the importance of realizes a number of steps in the foreseeing future, such as the governmental entities have to advocate strategic and financial planning of future projects and initiatives.
Hani Al Hamli
HE Hani Rashid Al Hamli, Secretary-General of Dubai Economic Council (DEC) stated that in terms of its mandates to monitor the developments in the local economy according to some economic indicators, the Council invites a number of federal and local officials to discuss and show them the viewpoints of DEC’s members concerning the appropriate policies to confront the impacts of global financial crisis and to restore the location of Dubai as a regional and global center of business and finance.
Al Hamli also stated that the long-term bonds is considered to be an active investment instrument adopted by many countries to control over the local liquidity movement and hence-the economic stability. In this sense, Al Hamli confirmed that the latest step taken by the Government of Dubai would strengthen the local economy under the recessional situation the globe and region suffer.
At the end of meeting, HE Juma Al Majed appreciated the active participation made by participants. He confirmed that “confronting the impacts of global financial crisis is a national responsibility of all, and the Council would double its efforts and debates to find policies and recommendations in the direction that restore the economic development sustainability”.
no Comments posted by readers:
This statement should go some way to reassuring local business that the government is aware of and tackling the crisis now being felt locally and globally. It was clearly translated in some haste from an Arabic original.
It should not be forgotten that the UAE has one of the world’s strongest economies with no net borrowings and huge overseas investments as well as massive oil and gas reserves among the cheapest in the world to access.
Dubai’s $80 billion debt mountain is only one third of the UAE’s annual GDP and refinancing from the federation’s Central Bank is an obvious solution, borrowing from one account to replenish another. Thus the real estate boom that has bust is a burden on the economy, and especially for property developers, banks and their clients, but poses no systemic risk, and is utterly unlike the challenges facing the UK or USA, for example.
But that said the business climate is now that of a serious downturn, despite the boosting of government spending, and a contraction of GDP looks inevitable this year with consequent job losses and business failures. Oversupply of property is likely to deepen the downturn and lengthen the recovery process.
An upturn in the oil price is the most obvious catalyst for a recovery in the UAE economy and is likely to be an early signal that the global economy is on the mend.
At this juncture, any upturn in oil prices may result in undesired negative consequences for oil exporters. Consumers are already tapped out, and have vastly curtailed driving their vehicles, and due to reduction or even complete loss of home equity credit (people using their homes as piggy banks, as it were), have vastly curtailed discretionary spending. And an increasing number of people are having difficulty with NON-discretionary expenses, such as mortgage payments, gas, water, electric, taxes, etc. Job losses mount, fear mounts, people are scared to spend, creating yet more weakness in the economy, leading to more job losses.
I believe “Negative feedback loop” is the latest catchphrase. I’ve mentioned this before, that I believe greatly reduced HELOC cash is going to be a terribly swift sword that slashes deep and wide.
So, against this backdrop, any increase in oil prices effected through OPEC production cuts without the existence of a robust, durable increase in market demand, may backfire on the oil-exporting nations.
Things will stabilize when the housing market reaches normalcy, and people once again are able to borrow against their home’s value – but only IF the banks are willing and able to resume making those loans, of course…