The United Arab Emirates’ central bank has doubled its banking stimulus package to Dh256bn ($70bn) as a business sentiment deteriorated in the Gulf’s commercial centre.
The bank on Sunday said it would reduce reserve requirements for demand deposits, injecting Dh61bn to support banks’ lending and liquidity management. The measures, which built on last month’s Dh126bn stimulus in mid-March, also included Dh95bn in assistance to banks as the UAE extended a programme to defer retail and corporate debt payments until the end of 2020.
“The additional measures announced today will effectively relieve the pressure on financial institutions, offering the required relief and continued access to funding for businesses and households,” said Abdulhamid Saeed, the central bank’s newly appointed governor.
The fresh financial stimulus comes as the non-oil sectors of the Gulf states’ two largest economies are decelerating rapidly, according to new business confidence surveys.
The Gulf’s private sector, which is reliant on state spending, has been hit by tumbling crude prices and the curfews designed to stem the spread of Covid-19, that have left businesses reeling as airports close, trade slows and hotels lie unoccupied.
Saudi Arabia’s non-oil sector saw business conditions decline at their fastest pace in more than a decade, recording their lowest level since the IHS Markit Purchasing Managers’ Index survey began in August 2009.
The kingdom’s PMI fell to 42.4 in March — the first time it has fallen below the neutral value of 50 — from 52.5 in February. Steep declines in output levels and new orders weighed on the PMI, though employment was “relatively resilient” with staffing falling only fractionally.
In the UAE, the index dropped to a record low of 45.2 in March from 49.1 in February — its third monthly decline.
New orders fell at their quickest pace on record as tourism, trade and consumer demand were hit by Covid-19, IHS Markit said.
“The closure of airports in the UAE and working-from-home policies, as seen across the globe, are likely to extend the downturn into April, particularly as there is no end in sight to the pandemic,” said David Owen, an economist at IHS Markit.
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The survey reported the sharpest decrease in employment on record as firms made staff redundant and asked employees to reduce hours.
Companies have been sending staff home on leave, often unpaid, while also cutting jobs and salaries.
New labour regulations require employers to cover the accommodation costs of staff who have been put on unpaid leave until they can find a new job or return to their native countries.
An owner of a restaurant chain said he had closed six of seven outlets, with one remaining open for delivery. With the business facing revenue declines of 85 per cent, staff have been sent home to their accommodation on unpaid leave.
“Banking relief is all well and good,” he said. “But until revenues recover, it doesn’t mean much — the top line has to work.”