Photo has been used for illustrative purposes.
Imran Mojib, Special Correspondent
Unconventional financial tools such as frequent liquidity injections may restore credit flows and facilitate recovery but run the risk of asset price overvaluation, said Dr. Patrick Lenain, Assistant Director at the OECD, France.
Addressing an E-Symposium, titled “Economic Stimulus Programmes - Requirements and Challenges,” organised by Trends Research & Advisory, Abu Dhabi, Dr. Lenain said the policy is encouraging borrowing, which often causes the risk of over-indebtedness.
“These tools may have positive effects such as restoring credit flows, facilitating recovery, and encouraging risk-taking. They lower the risk of non-performing loans and sovereign default. However, they also risk harming bank profitability and income equality,” he said.
Dr. Lenain said that massive monetary injections also require central bank independence and credibility, which is not always the case in emerging markets.
“The big concern with liquidity injection is that it would lead to a depreciation of the currency, higher inflation, financial stability risks, and foreign exchange mismatches,” he said.
According to Dr. Lenain, emerging market central banks often do not have the legal framework, as buying bonds are forbidden. He also cited the example of massive currency depreciation in countries like Brazil, South Africa, Argentina, Turkey, Mexico, and Russia following the COVID-19 outbreak.
Speaking at the E-Symposium, Prof. Steffen Hertog, Associate Professor in Comparative Politics at the London School of Economics (LSE), said that the GCC has unique and particular vulnerabilities given the volatility of the oil prices.
“Growth depends on state spending, which will have to reach the pre-crisis level to bridge the gap and move forward for the GCC region,” he said, adding, “The GCC economic system suggests that the recovery might not be as fast as other developed economies.”
“Many people in the GCC are employed by the state, directly or indirectly, which means that many variables in the recovery phase will depend on government policies and government spending,” said Hertog.
According to him, we might see an L-shared, rather than a V-shaped recovery, unless the oil prices recover. “Going forward, policy-wise, the transition to building a non-oil revenue is becoming urgent, but short-term measures to get there might be quite challenging and painful to the consumers,” he added.
Prof. Hertog emphasised that the most urgent policy going forward is to make fiscal spending more efficient.
The UAE’s Ministry of Finance (MoF) and the Ministry of Health and Prevention (MoHAP) recently participated in the virtual Joint Meeting of G20 Finance and Health.
Tabreed, the National Central Cooling Company, released today its consolidated financial results for the first six months of 2020. The company reported in a statement on Sunday a net profit of Dhs224.30 million,
The value of Abu Dhabi non-oil foreign trade has reached Dhs80.23 billion through the emirate’s outlets during the first five months of 2020, the Abu Dhabi Customs has announced.
Saudi Aramco on Thursday announced its first global investment in liquefied natural gas, part of a broader bid by the energy giant to expand beyond oil.
Mariam Bint Mohammed Almheiri, UAE Minister of Climate Change and Environment, called upon UAE businesses to mainstream sustainability into all their operations
Dubai property market is witnessing a remarkable growth and developers are announcing new projects to meet the rising demand in the market.