Turbulence across the Arab world and Dubai's ongoing property glut pose risks to the United Arab Emirates' economic recovery, the International Monetary Fund said Monday.
The oil-rich Gulf federation also needs to shore up its powerful government-backed firms that were at the center of its boom and bust through writeoffs of bad assets and greater transparency in their financial situations, the IMF said.
After being hit hard, especially in Dubai, by the 2008-2009 financial shock, the UAE economy should grow by 3.25 percent in 2011, with a good pickup in the non-oil sector, the Washington-based institution said in a mission report.
"The economic recovery is gaining strength, supported by a favorable global environment but subject to increased regional uncertainty," it said.
"Risks to the recovery remain, including from possible economic spillovers of regional events... The excess supply of property in Dubai and the uncertainty regarding its size will continue to weigh on growth."
The IMF warned that the current reevaluation of political and sovereign debt risk in countries in the region could bring "more challenging market conditions" which could impact businesses, including state firms, known as GREs, which it said had "substantial" debt rollover requirements.
The UAE's close neighbors Saudi Arabia, Bahrain, Yemen and Oman have all experienced political turbulence at varying levels in the past month.
UAE banks -- the heart of a growing regional financial center -- are resilient, thanks to capital support mainly from the government. But the IMF pointed out that non-performing loans have doubled since the financial crisis broke.
The central bank "should continue to ensure that banks provision adequately, particularly in light of increasing provisioning needs on Dubai GREs," it said.
The IMF also said that more attention needed to be focused on GRE-related risks.
"Dubai's debt restructuring experience and increased borrowings of GREs in other emirates call for monitoring the risks posed by these entities more closely."
Dubai's state-controlled companies were at the center of that emirate's property boom and crash, forcing Dubai to obtain a $20 billion bailout from sister emirate Abu Dhabi.
Dubai's economy has begun growing again on a resurgence of trade, tourism and other services, but last year the property sector contracted by five percent, a government official said late last year.