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Abu Dhabi: Central Bank data has shown a huge rise in the UAE's monetary supply with an increase of over Dh187 billion during 2007. Over this period, the figure rose from Dh505.64 billion to Dh692.4 billion, in a move considered to be the fastest monetary growth rate experienced by the country in five years.
Economics expert, Dr. Ahmed M. Al-Samerai, Chairman of Saharar Group, commented, "The expansion of industrial, logistical and real estate sectors, coupled with huge economic and real estate progress in the region, in addition to ascending trade revenues and rising current accounts, due to commercial transactions, plus various other facilities, has contributed enormously to the huge liquidity flow into the country.
"This flow was accompanied by the addition of several different foreign capitals for investment which exceeded USD 19 billion in 2006 alone. This led to an increase in liquidity which keeps flowing into the country as a result of several important factors that are driven by high petroleum revenues.
"However, little of these excessive funds are invested in legitimate, profitable investments due to investment opportunities being narrow and mostly exclusive to real estate and financial sectors. Real estate revenues ranged between 10-50 per cent in Dubai, while revenues didn't exceed 8 per cent in Belgium and 7 per cent in the US, which does not include tax rates or cut off revenues. The need for opening new investment outlets became dire to control inflation and maintain economic growth earnings", added Al Samerai.
Despite high liquidity, the Ministry of Economics reported an 11.1 per cent inflation rate in 2007, which was considered the highest in 20 years. This matter stirred controversy over the contrast between high liquidity and the resulting inflation, as Dr. Al Samerai explains, "Flocking of liquidity over projects due to the favourable investment environment made opportunities scarce, which in turn led to lack of investments and incensement at available investments prices, which ultimately led to increased prices as a result of competition. Inflation rates also increased because liquidity demands outlets."
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