The Global Economic crisis & its blow on the UAE

The year 2008, a horrible year, will be recorded in history as a year in which the global economic system came terrifyingly close to complete collapse. While global fiscal markets remained unmindful throughout 2007 to the pressure posed by the awaiting US housing crises, some commentators were hoisting serious creeps as early as 2006. Early signs specify that the GCC economies would live on the crises largely untouched.

UAE’s economic institutions appeared to have little or no disclosure to sub-prime derived mortgage backed securities and commercial balance sheets were in a very healthy position. The region was enjoying an upright economic cycle driven mainly by massive investments in infrastructure, high oil prices and expansionary fiscal policies.

By the middle of 2008 a dichotomy had developed as real estate developers, companies and banks in particular, started to feel the pinch of tapering liquidity. Over a period of six months, the MSCI UAE Index lost 71% of its market finance instead of AED 320bn. A similar picture came out for the wider GCC region with the MSCI GCC Index losing 51% over the same period, an immense destruction of AED 1.5tr of capital brought about by an unparalleled de-rating of global rising markets.

 In “Outlook for 2009”, a report put forward by IMF’s, Standard Chartered implies that UAE may be exposed to a prolongation of tight liquidity states over the next twelve months, “The UAE financial system is facing a textbook style setback. Inflows have turned into outflows, and the deposit base in the banking zone was hard-pressed to keep up with forceful credit growth. As a result, liquidity has burned up and the financial system is slowing down, with the housing market seeming particularly at risk”. Corporate fundamentals in the UAE remain largely intact but overlooked. Global sentiment has been the main driver for markets and selling pressure is now materially over-extended.

The crisis in fact affects developed countries; the UAE markets have lost more than half their value. At present levels, the UAE market appears highly underestimated. The UAE and wider GCC region have promoted significantly from the savings of oil and gas income which has led to external assets buildup. This will persist to provide a buyer during this economic crisis. The IMF, in their October “Regional Economic Outlook” for Middle East and Central Asia says, “The medium-term attitude for the region is desirable— continued fiscal makeover through large-scale spending on investment while, at the same time, setting away major wealth for future generations.”

Global financial downturn has caused worries in many organizations across the globe. The Pressure to survive against odds and push the company forward is the dispute before the board and accountants have an imperative role to play in appealing the battle.