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Considering the current dept crisis facing the Dubai’s World real estates and the government, a constructive engagement with the creditors would be very helpful for its acceleration on economic growth as well as its dependants who are mainly the developing countries benefiting from its exports of the wide range of products and machinery.
The creditors of a county require equal treatment for a positive impact to the already experienced market uncertainty. This calls for urgent and regular communication with the creditors and investors with the aim of orderly and timely solutions.
The credible factors the United Arabs Emirates ought to address urgently include the reputation ruined by the property sector (real Estates). The international investor confidence remains dented thus lowering the value of equity, risk basic coverage and its future access to international markets.
When the risk repugnance is high among traders, the conditions for acquiring credit become more restricted. Finally, the financial losses have a huge impact to the overall balance sheets to the household level. These consequences require the support of the International Monetary Fund or the World Bank assistance.
The support from the international financial institutions acts as a prevention or resolution facility that entails flexibility on the credit offers as per the urgency of the needs.
Possible positive effects of IMF/World Bank on the UAE
The IMF and World Bank financial support, development advice and security assessment and validation policies would be very important during this global financial crisis.
Considering the UAE, which is one of the world’s chief oil exporters, the decline on the oil prices would highly affect the revenue thus leading to the country’s economical reduction.
The lowered oil prices mainly affect the expenditure patterns of the public while a weak global economy affects on the tourism of the country considering that it is one of the most visited country by tourists from all over the world.
The country’s revenue mostly comes from the oil exports and thus the eminent reason why the financial bodies would work conjunctively to supplement the lost income and offer financial support to the economy.
The regional and global trade deal holds status of the banking sector for a country like the UAE. More favourable work conditions that support economical growth and capital markets can work out through proper liberalisation.
The IMF and World Bank are financial institutions that provide the required comfort zone of capitalization and profits through the expansion of the economy. As a financial institution, the IMF is in a position to recommend regulations that govern the risks involved in mortgages and lending in the real estates by financial institutions.
Taking the situation in UAE, the fall on the real estates sector would compromise the quality of consumer loans. Mostly the effects on the loan may come about due to the lending standards by other financial institutions due to competition.
One major benefit the IMF provides to its members entails the surveillance. For an affected economy such as the UAE, the IMF has broad powers for ensuring proper surveillance of the exchange rates policies, which ensures adherence principals provided through the registered act of the member countries.
The annual consultation forums with the member countries also ensure proper analysis of the economical and developmental policies and recently studies indicate some “social, environmental, industrial, labor market, and governance issues as factors influencing economic engagement of a country.” (Mody et al, 3)
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Surveillance over the regionally designed policies also assists to bar regional economical consequences. Well-enhanced security ensures expansion of the capital markets.
The IMF facilitates expansion and balances growth of the trade by encouraging the use of convertible currencies. Today it is rare to find discrimination of currency among the member countries.
The IMF and World Bank are in a position of providing technical support to the member countries such as the UAE. Since time in memorial, the IMF helped to setup the central banks and finance ministries of the member countries upon requests.
Some of other areas addressed by the IMF and are not in relation to economics include the sectors supporting the laws that support free trade, building of the financial institutions, emending the monetary policies of a country, taking and analysis of statistical data.
The International Bank for Reconstruction and Development (IBRD) together with the International Development Association (IDA) also known as the World Bank facilitates. They issue loans to the government and other public or private entities approved by their respective government.
The key and most important point of these loans is their concession nature; they are interest free and long-term depending on the nation’s per capita GDP. IDA loans come from donations made from the world’s rich countries thus their nature.
The UAE is a stable and well-developed country where the current market inflation rates may be of little or no impact to the state’s economy. Being a major oil exporter, the UAE has a stable and powerfully built economy and many dependants particularly the developing nations.
It is also an influence to other sectors of the economy such as the tourism industry besides being a chief key energy resource supplier.
The concern of the IMF and the World Bank probably inclines on the issue of oil prices, which is a global concern. Stable oil prices are only achievable when the economy is stable and growing without any political or social concerns.
This can be the basis for cooperation between the UAE and IMF or World Bank. The IMF acts as the financial advisor to the UAE. In relation to conducted research over the effects that can occur due to collapse of the UAE, the major effects would befall other economies especially those of the developing countries.
Mody, Ashoka. Kletzer, Kenneth., and Eichengreen, Barry. J. “The IMF in a world of Private capital markets”, International Monetary Fund: European Deptment. International Monetary Fund Publishers, 2005