IMF Public Information Notice on Article IV Consultations with the UAE

The IMF released today the Public Information Notice ("PIN") on its Article IV Consultation with  the UAE Government.  The PIN begins with a review of the country's condition and then Executive Board recommendations.  The latter are the heart of the PIN in terms of getting an understanding of what the IMF considers the major issues and the solutions (at least in broad terms).

The recommendations are written in diplomatic language.  So criticism is indirect.  Areas for improvement may be "noted", "stressed", "emphasized".  The tone of these words suggests both the size of the shortcoming and the intensity of the Executive Directors' recommendations.   Also there is "on the one hand but on the other hand" mechansim which is a polite way of raising issues. First, the IMF praises something as having been done well, then it turns to the meat of issue by raising that which has not been done or not been done well.  One can of course also look at the positive statements as an assessment of the achievements of the country.   Like all other such reports, it's best to look at several years to get a sense of progress made, recurring or unsolved issues and new issues that may have emerged or where the emphasis may have changed.  Interpreting PINs is an art not a science so one should have a bit of healthy skepticism about the absolute accuracy of one's analysis.

That's my introductory tafsir.  There is also an IMF prepared guide to the defining what certain terms used in relation to the Directors mean.  This is useful in determining how many directors held a particular view.  For example, in this PIN, you will note that it says that "most directors" agreed that the US$ peg made sense.  That means 15 or more.  Here's a list of the 24 current Executive Directors.

So what were the recommendations and what might we infer (note that word: infer not know for certain)?

1. Commended on actions taken in face of global crisis but noted that DW restructuring poses significant challenges to the economy.  Not just a statement of fact but setting the stage for further comments.  And note this is the first topic addressed and you will see it as a sub theme or motivator for most of the recommendations. 
2. Directors agree on the fundamental strengths of UAE economy but it will be important to have balanced and sustainable growth.  Translation:  No more indoor sky mountains and other uneconomic fripperies.  No artificial real estate booms.
3. Re the DW restructuring they want a speedy, orderly, cooperative, and predictable approach to debt restructuring.  The implication here is that they don't see this taking place at present.
4. They underscored that the process should seek to enhance transparency and information disclosure and ensure comparability of treatment among creditors.  Concern about some creditors being favored over others.  Perhaps the Nakheel Bond? Perhaps a worry about side deals for UAE banks?  And as we have heard before "transparency".  So some of this is forward looking - not an admonition regarding sins of the past but an encouragement not to sin in the future.
5. Emphasized need to restructure GREs.  The language here is strong.  "Emphasized" "vigorous".  Basically the message is to kill non economic GREs. And again probably pretty clear which Emirate's GREs are of primary concern.
6. Then a push for updated provisioning etc with banks. And I'm reading a strong concern about shortcomings in regulation of systemically important banks.  In other words how the heck did some of the large banks get such large exposures to DW?  As well as rather poor regulations.  The CBB UAE has already taken steps to address some of these issues and new regulations are expected in the very near future.
7. The comment on greater co-ordination rationalization of investment decisions at the Federal level.  It's doesn't take a crystal ball to figure out that they are commenting primarily on one Emirate's "investment" decisions.
8. Directors stressed the need for increased transparency of economic and financial data, including financial accounts and business strategies for GREs. Together with improved corporate governance, Directors concluded that these steps would contribute to facilitating access of viable GREs to capital markets.  The clear implication is that they feel that GREs are not up to standard on these issues.  The recent article in The National about the mess in Dubai World's entities is precisely the sort of thing they were referring to.  Also note the choice of the adjective "viable".  That implies to me that the Executive Directors think there are some non viable GREs.
9. And finally a recommendation for improvement in national accounts.  Pretty much a standard mantra for the IMF.  And as has been demonstrated recently, even in Europe there is some fudging of national statistics.