The COVID-19 pandemic brought the world to a virtual halt, and even after a year, economies are struggling to get up and thrive. Governments around the world are looking to adapt to the "new normal" and have been carrying out measures to revive their economies. The economy of the UAE was also hit hard by the pandemic and is expected to shrink by around 6%, according to IMF estimation. The key sectors, tourism, real estate, transportation, and trade, are significantly affected. Furthermore, the lower oil prices are weighing in on the country's finances, with the government expected to post a deficit of about 9% of GDP.
In May 2020, UAE gave the first indication of how it plans to revive in a post-COVID world by announcing a two-phase recovery strategy. In the first phase, the economy will reopen, supported by incentives for the private sector. The next phase will be characterized by a long-term stimulus strategy to speed up the recovery and promote investments in the digital economy, including 5G networks and Artificial Intelligence. Digital asset investors can stand to gain from such a move. Apart from the digital economy, the "green economy" is a priority area for the post-pandemic world, which will witness support for industries such as electric cars, renewable energy, and circular economy. Another area of focus will be food security by adopting advances in AI, biotechnology, and genetic engineering.
UAE has also adopted an accommodative monetary policy to revitalize the economy. The central bank has reduced policy rate by 125 basis points in 2020 and has also halved the reserve rates for banks from 14% to 7%. This will ensure continued credit availability and keep the economy going. The Central Bank of UAE has also introduced a new security issuance program for financial institutions called M-bills (monetary bills), which will be traded through Bloomberg's primary and secondary market solutions.
The country's strong export credentials will have a cushioning effect on the harsh financial conditions and the impacts of the pandemic. According to investment groups, UAE's friendly business environment, excellent infrastructure, relatively diversified economy, and political stability support FDI inflows. UAE remains the major destination of FDI inflows in the region, which will positively impact economic revival.
In the past few months, the country has also been carrying out deep economic reforms that can transform the economic foundations, and these will positively affect future growth. The authorities have set clear targets to achieve a competitive knowledge-driven economy with a focus on emerging technologies. The UAE has been working on redesigning and transforming its economy to enhance the economic mix, emphasizing business, investment, and technology. The government will focus on adaptation and faster recovery with an emphasis on sustainable growth. All these efforts will increase productivity growth and boost the supply of high-quality skilled labor necessary for rapid economic growth.
the occasional resurgence of cases, the UAE has successfully contained the virus's spread. Huge resources spent on rapid testing and broad-based vaccination programs are expected to yield tremendous results. In the latter half of 2020, the reopening of businesses began, travel restrictions were slowly lifted, international borders were opened again, and investment opportunities rose. The economy has begun a quiet recovery. Now the country has to focus on sustaining the efforts harmoniously and productively while considering potential future outbreaks of the pandemic.
The COVID-19 setback should be seen as a catalyzing agent toward rebuilding the economy in a sustainable, resilient, and adaptable fashion.