Hot money flight valued at Dh44bn

Foreign banks pulled out of the UAE banking sector more than Dh44 billion in hot money last year after giving up hope the country would appreciate its currency against the US dollar, the Central Bank said yesterday.

Releasing the Arabic version of its annual 2008 report, the Central Bank said more than Dh50bn was withdrawn by non-bank private sector institutions and Dh108bn by the public sector in 2008.

The withdrawal of such funds put the UAE's capital and financial account balance into a massive deficit after recording a large surplus in 2007 despite a sharp rise in the country's oil export earnings in 2008.

From a surplus of about Dh105.4bn in 2007, the UAE's financial and capital account balance suffered from its highest deficit of nearly Dh203.06bn last year to underscore a record deficit in the balance of payments.

"The financial and capital account balance turned negative last year as a result of the exit of speculative money that had entered the UAE in 2007 in anticipation of a revaluation of the dirham against the US dollar," said the Central Bank.

"The outgoing funds included Dh44.8bn through the banking sector, Dh50.4bn through the non-bank private sector establishments and about Dh108.2bn through public sector institutions."

The Central Bank gave no figures for this year in its 2008 report, but its brief monthly baking indicators showed foreign banks repatriated an additional Dh20bn from the UAE in the first quarter of 2009.

The data showed deposits by foreign banks with the UAE's 24 national banks and 28 foreign units decline to about Dh155.4bn at the end of March from Dh175.6bn at the end of 2008.

The deposits had edged up to nearly Dh178.3bn at the end of January before they dipped again to Dh170.9bn at the end of February.

They were as high as Dh205.6bn at the end of 2007, when speculation mounted over a possible decision by the UAE and other Gulf oil producers to revalue their currencies against the US dollar within the monetary union plans.

Analysts believe speculative money withdrawal had continued through 2009 after the UAE decided to join Oman in quitting the GCC monetary union, which is originally scheduled for 2010. The Central Bank's report showed the private sector siphoned out Dh94.8bn in 2008 after pumping nearly Dh217.3bn into the country's economy in 2007. Public sector establishments transferred out Dh108.2bn in 2008 and Dh111.9bn in 2007.

"Large transfers turned the surplus in the UAE balance of payment of about Dh183.2bn in 2007 into a deficit of Dh172.4bn in 2008," it said. But the figures showed the current account, which covers the difference between import and export of goods and services as well as transfers and investment income, recorded a surplus of Dh81.8bn last year compared with Dh72.1bn in 2007. The rise in the surplus was the result of an increase in oil export earnings to Dh313.7bn in 2008 from Dh224.6bn in 2007.

The figures showed losses inflicted by the global financial crisis depressed the UAE's net investment income to Dh13.9bn from Dh30.7bn.

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