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Macroeconomic Policies And Challenges In The Uae Economics Essay

The United Arab Emirates has a strong physical infrastructure, besides stable macroeconomic environment, as fairly free trade along with financial policies and easy access to skilled labor and product markets. Moreover, the inflationary pressure prior to the crisis revealed the challenges for monetary policy in the context of the US Dollar-peg and the lack of a domestic bond market. Conversely, monetary policy is one of the few policy areas unambiguously controlled by the UAE level through the Central Bank. On the other hand, the UAE benefited from executive management of large oil revenues, although the simultaneous accumulation of foreign debt indicates the challenges for managing fiscal policy. Additionally, macroeconomic management was successful in stabilizing the UAE financial system in the midst of the crisis, but failed to prevent pre-crisis overheating and overleveraging. Consequently, this study is to illustrate the main challenge for the UAE is the formal structure in macroeconomic policy, which it consist of Fiscal policy, which is the public spending aligned with revenues over time. In addition tom monetary policy, which are the low levels of inflation. Along with macroeconomic management, which is to avoiding structural imbalances and periodic overheating.

Keywords: Macroeconomic, interest rate, inflation, fiscal policy, monetary policy

UAE macroeconomic policies Challenges

The United Arab Emirates economy is based on solid macroeconomic fundamentals in addition to resonance policies straining in infrastructure as well as a competitive advantage. Furthermore, its flourishing diversification commencing hydrocarbon keen on higher value-added, as well export-oriented manufacturing along with services formulates it a striking strategic associate for further developing states at the side of its inherent attractiveness in hydrocarbons.

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After entering the WTO, the next mighty things coming out of the United Arab Emirates economy are the vast projects of economic countries, which are going to comprise a permanent force resting on the macroeconomic policies furthermore, on the elementary structure of the UAE economy. On the other hand, UAE economy is performing extraordinarily healthy in the most recent only some years ago, led by means of oil-driven development. Pointing to the fact that UAE’s nominal Gross Domestic Product (GDP) is projected to have grown-up with 2. 4% in 2009 to contact US $ $230 billion while real GDP is estimated to have grown by 1. 2% to US $ 186. 8 billion. In the face of strong development in surplus, the government is thoughtfully expending on mutually oil as well as non-oil sectors which might be observed in 6% raise in the oil category GDP within 2009 at the same time as the enlarge in industrial action saw the non-oil industrial sector develop through 6% in the same period. Besides the government, economy saw increased interest commencing private in addition to foreign actors who have enlarged investments in the UAE. Although dominated by the oil segment, the UAE government proposes to vary the economy also to use it as a support for job creation.

On the other hand, Since 1980s recent macroeconomic policies emerged in United Arab Emirates to cover the money as well as any other upcoming crisis. These new policies emphasized structural adjustment programs and policy reforms. Additionally, building a healthy competitive environment is considered the crucial factor to achieve production efficiency, while the government’s role focuses on the regulatory role and capacity building.

The modem economic progress of the United Arab Emirates had depended for the most part on the petroleum industry. Knowing that oil is depleting and taking serious note of the economic ramifications of random fluctuations in oil prices, the government of the UAE has, since early 1980s, embarked on solid economic diversification strategies. Economic diversification away from crude oil is inevitable for achieving sustainable future economic growth beyond the oil era. Both public sector and private domestic investments have grown remarkably in the 1990s. Nevertheless, as evidence suggests private investment rather than public funding is associated with higher growth rates.

United Arab Emirates as well as other neighborhood Countries in Arabian Gulf area are strongly shifting towards bigger anticipation in the worldwide economy. Moreover, while the most of Gulf Cooperation Council (GCC) countries are at present members within the World Trade Organization (WTO), several countries either have signed or even are completing trade agreements in the midst of the European Union (EU). Furthermore, the growing tendency towards provincial along with worldwide globalization is presenting at UAE as well as the area with different monetary along with fiscal challenges. Accordingly, bigger macroeconomic policy coordination along with cooperation might be involved in terms of preparing for enhanced economic integration. Since, they are choosing for amplified provincial economic integration in the prospect. On the other part of the same story, a significant fraction of economic integration is the enlarge within cross-border trade all the way through the enlivening of trade barriers seeing that offering within the outlines of the countries of Gulf Cooperation Council (GCC)


Over the past two decades, an unstable macroeconomic environment has plagued the area with negative implications for regional integration efforts. United Arab Emirates as well as the region states have practiced numerous occurrences of monetary unsteadiness that have caught up efforts intended at integrating of the same economies. Furthermore, on the monetary part, exchange rates have commonly been predetermined to the currency of United States dollar; along with the achievement of the policy of ostensible pegged regimes to the dollar has not been uniform across the region.

1. Exchange rate policies:

UAE as well as the region countries has practiced occurrence of soaring domestic inflation, attached with a slack extension of the money supply. As a result, this has effected in a stable positive reception of the actual exchange rates in several of the region countries.

By pegging the currency toward a comparatively low-inflation currency, for the most part the United States dollar, seeing that a result of depending on elevated interest rate policies to protect the exchange rate, United Arab Emirates has attempted to incorporate and go back inflationary pressures. While this policy has helped it reduce inflation substantially, it has also generated continuous real exchange appreciations; losses in international competitiveness; fluctuations in GDP growth rates; and powerful trade and sometimes budget deficits. On the other hand, a fixed nominal exchange rate regime combined with careful anti-inflation policies have led to aggregate real exchange rate overvaluation.

The UAE exchange rate preparations are rigid as well as fixed toward the United States dollar through surprisingly limited exchange rate bands. The United Arab Emirates have been pegged to the US dollar from the year of 1975, at almost 3. 67 Dirhams per dollar.

On the other hand, the use of monetary policy measures is constrained because of the peg to the dollar. However, the authorities can limit the growth of the monetary system and therefore money growth from external capital inflows resulting from higher oil revenues, by investing the strong current surpluses outside the UAE.

The dollar peg means the authorities have little independent control on interest rates. Therefore, they can require banks to curb lending or obtain legal restrictions, for example on lending to property, for equity purchases and so on. They could also offer banks’ reserve requirements, which would freeze role of banks’ deposit base.

2. Interest and inflation rate policies:

Over the past two decades, United Arab Emirates introduced significant changes in the form of monetary policies moreover, with in its instruments, as well transitional targets in addition to eventual objectives. Intention towards the inflation rate as opposite on the way to the growth rate of GDP has been obtaining considerable attractiveness amongst policymakers. This recent move has been supported by strong empirical evidence pointing to the fact that positive along with unrestrained inflation rates lean to deform private segment motivations to save, as well consume, besides invest and produce that eventually lead to slower growth rates in real GDP. United Arab Emirates was moving in that way before 2003. In the UAE, inflation rate appeared to have been newly restricted, as well as monetary policy comes into view to be progressively geared towards price constancy, where inflationary demands of the 1980s came out to have been enclosed through 2002. On the other hand, oil returns rose from the time of 2003 have reawaken inflation in the United Arab Emirates moreover, may be possibly in further countries of the Gulf area.

High inflation is an essential macroeconomic policy challenge faced by the UAE. Since the inflation implies a grinding down of purchasing power with the dirham in anybody pocket commanding fewer goods as well as services; therefore, the real value of money declines. Moreover, it has to be addressed by a combination of policy measures, including structural policy measures that will reduce housing and real estate shortages, while focusing on the growth of government spending on infrastructure services that can increase overall productivity growth.

The time limits of currency devaluations were coupled within increasing inflationary pressures. On the other hand, in United Arab Emirates, inflationary pressures of the early 1980s seem to have been enclosed in addition to inflation rates were something like 1. 5 per cent with the end of 2009. Owing to the downward trend in the inflation rate, inflationary pressures in UAE came out to have been bearing towards additional suppression prior to the latest grow up at the oil prices in addition to returns in 2008. This is beside that Lower inflation rates in UAE have translated into significantly lower interest rates.


While the Gulf Cooperation Council (GCC) countries area is not yet fully incorporated, it is interdependent. Accordingly, the challenge of integration offers increase toward concerns that are vastly different from those raised in the integration processes within the Gulf Cooperation Council (GCC) countries. On the other words, when evaluating the matter of economic integration within the GCC countries, the preliminary position requires to be commencing the intention that integration is attractive. Furthermore, following to such determine, the subject turns into one of how greatest to achieve integration.


There are several of recommendations, which might be carried out at the micro level in order to retain, attract and encourage foreign direct investment flows in the United Arab Emirates. Since such macroeconomic Policy Recommendations On the national front, and after all, above discussions, and besides the light of the recent economic downturn, moreover, to improve the investment atmosphere in addition to increase foreign direct investment inflows, a number of policy recommendations are worth considering, suchlike:

United Arab Emirates needs to continue to work to achieve a stable macroeconomic environment and thus reinforcing credibility in the economy.

This is besides, ensuring that legislation has a clear interpretation.

Additionally, to rapidity up the completion of new laws in addition to modifications to obtainable legislation that will assist the investment climate.

As well, it should improve the business climate in United Arab Emirates. As another point, this should go along with attempting to develop UAE as a transparent business centre with open market-oriented economic conditions.

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Extend more government guarantees, since more control guarantees to the financial system will have a crowding-in effect on foreign direct investment flows as the financial sector might be considered as “safe” place to invest by foreign investors.

Adopt of additional fiscal stimulus packages, as more public investment programs, mainly aimed at infrastructure investments builds up confidence in the economy, which will have a definite impact on foreign direct investment inflows on the end of new investment opportunities.

Inject more liquidity, because other monetary liquidity injections will also have a positive impact on foreign direct investment flows. Moreover, building on the initial liquidity injections will in effect reassure confidence and therefore attract foreign direct investment into United Arab Emirates.

Change the ownership laws, whereas change the company law to provide 100% ownership rights in some sectors which will benefit from foreign direct investment flows.

Open up constricted economic sectors, as while opening up some economic segments that are inedible limits toward foreign investment, such as services to increase competitiveness and productivity.

Change real estate laws, as we can observe that changing existing caveats on foreign ownership of land or real estate in UAE to attract more foreign direct investment.

Expand Free Trade Zones (FTZs), as expanding existing FTZs in UAE, which will certainly attract and develop new foreign direct investment flows.

Finally, and debatable most influential of all, promoting the participation of the private sector and increasing the speed of the implementation of privatization programs is essential in boosting foreign direct investment flows.


The stable outlook on United Arab Emirates balances the country’s strong financial position, which should support it to overcome most understandable pressure circumstances devoid of weakening its creditworthiness, in opposition to the provincial geopolitical hazards. Therefore, the future moreover takes for granted that demands gaining commencing strapping population increase in addition to associated soaring inflation, as well as several alteration of enthusiasm in the United Arab Emirates economy and for example such like the property market, will be managed carefully. On the other hand, decreased of geopolitical hazard in the circumstance of sustained local political constancy along with a flourishing accomplishment of the government’s growth along with renovation plans would be essential for a future rating upgrade. However, almost all-economic sectors benefit from the macroeconomic policies that provide tariff exemptions for inputs, raw materials and equipment and an environment that is free of income and profit tax.

Furthermore, it is indispensable to emphasize, which there is not inconsistency among the long-term strategies that contribute to solid local currencies or even toward monetary union. For the most part, the requirements are comparable. Both require a strong fiscal position, as well solid prudential regulations in addition to supervision of the financial system, together with flexible labor markets. Despite the final decision concerning the status of policy coordination, thus the policy agenda hence requires to be similar.

Finally, we can disclosed that exchange rate flexibility would decrease the requirement for local prices in the oil-exporting economies to go up or even drop together with the price of oil. In addition, it may make more capacity for monetary policy reproduce local conditions, moreover assist oil-exporting economies handle the vast dangle in government income that go together with vast swings in the price of oil. Therefore, the moment in time has come up to decouple the currencies of high oil-exporting economies from the dollar.


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