Where’s the UAE’s cash helicopter?

29 Mar, 2020 - BCB

Governments around the world are responding to the unique economic situation caused by Covid-19 with similarly unprecedented levels of bail-out funds & guarantees as all attempts are made to keep the global economy alive until the corner is turned.

Set against this backdrop, the measures taken in the UAE so far – primarily supply-side improvements to boost local lending & liquidity (see our blog A view from the market) – might seem to be a drop on the ocean, but the reality is that the UAE faces a very particular set of circumstances as to why helicopter money doesn’t necessarily work here as it does in other countries.

Two statistics outline the issue:

– The UAE’s 2019 population of 9.68 million is comprised of circa 88% expatriates and 12% Emirati nationals

– In 2018, outward remittances from the UAE totaled USD 35 billion, amounting to approximately 8.5% of annual GDP.

Based on these dynamics, the UAE faces a problem whereby turning on the bailout taps will likely see much of the money flow out of the economy altogether, to overseas recipients, altogether mitigating the intended effect to boost the local economy.

Options are therefore limited. Capital controls are anathema to a global trading hub like the UAE and would be even more damaging & counter-productive, so I expect we’ll see more specific & targeted measures aimed at certain sectors where direct intervention has more practical & localized outcomes.