Head of IMF mission in UAE expects inflation to fall

Media IN 11/\05\2018
The head of the International Monetary Fund’s mission in the UAE, Natalia Tamireza, said yesterday that the introduction of value added tax (VAT) has gone smoothly in the country and that the inflation that jumped will then decline. Inflation is expected to average 3.5% this year, up from 2% last year, but will eventually drop to around 2.5%.
It also predicted that the new tax would increase revenues by about 1.5% of GDP in the long term.
The value-added tax, imposed at 5 percent at the beginning of the year, represents a major administrative and cultural shift in a country where taxes were minimal.
“Given the challenges, the application of VAT has been managed relatively well and relatively smoothly,” Tamiriza told Reuters after a visit to the UAE for talks with the authorities.
Annual consumer price inflation rose to 4.8 percent in January, its highest level since 2015, but fell to 3.4 percent in March.
Tamiriza said the latest data suggest the impact of the tax will be short-lived, partly because of inflation in sectors of the economy not covered by VAT.
The fall in real estate markets in Abu Dhabi and Dubai pushed rents of housing units down, pushing the consumer price index down sharply.