- Economic growth is strong, driven by robust domestic activity. Fiscal and external surpluses remain high on the back of high oil prices. The near-term outlook is positive but subject to elevated global risks and uncertainty.
- Banks are adequately capitalized overall, but continued close monitoring of financial stability risks is warranted.
- Maintaining a prudent overall fiscal stance amid higher oil revenue will help contain inflationary pressures. Structural reforms to support medium-term growth and a smooth energy transition should be continued.
Washington, DC: A staff team from the International Monetary Fund (IMF), led by Mr. Ali Al-Eyd, visited the United Arab Emirates during September 25 to October 3, 2023, to discuss economic and financial developments, the outlook, and the country's policy and reform priorities. At the conclusion of the mission, Mr. Al-Eyd issued the following statement:
"The economy continues to grow, benefitting from strong domestic activity. Non-hydrocarbon GDP growth is expected to exceed 4 percent this year and to remain at a similar pace in 2024, driven by tourism, construction, and real estate related developments. Social and business-friendly reforms and the UAE's safe haven status continue to attract foreign inflows of capital and labor, underpinning growth and contributing to elevated real estate prices, particularly in high-end segments. Following the OPEC+ production cuts, hydrocarbon GDP growth is expected to slow in 2023, but to accelerate next year with the UAE's 2024 OPEC+ production quota increase. Overall real GDP is expected to grow around 3.5 percent this year. Average inflation will remain contained at around 3 percent in 2023, down from 4.8 percent in 2022.
"Fiscal and external surpluses remain high on the back of high oil prices. The fiscal balance is expected to be around 5 percent of GDP in 2023, driven by oil revenue and strong economic activity. The phased introduction of a corporate income tax that began in June 2023 will support higher non-oil revenue over the medium term. Public debt is projected to continue to decline, falling firmly below 30 percent of GDP in 2023, including with the benefit of the Dubai Emirate reducing its public debt by 29 billion dirhams in line with its Public Debt Sustainability Strategy. The current account surplus is expected to be notably above the medium-term level in 2023 and 2024.
"Banks are adequately capitalized and liquid overall. Bank profitability has increased with higher interest rates and overall credit continues to grow, although at a slower rate. However, rising real estate prices and tighter financial conditions underscore the importance of continued close monitoring of financial stability. Continued efforts to strengthen the macro-prudential and resolution and recovery frameworks, promote the effective management of non-performing loans, and advance the National AML/CFT Strategy and Action Plan are welcome.
"The outlook remains subject to heightened global uncertainty. A decline in oil demand and reduced global trade and tourism from slower global growth, higher-for-longer interest rates, tighter financial conditions, or geopolitical developments would weigh on growth and pressure fiscal and external balances. However, higher oil prices and healthy fiscal buffers help mitigate risks, while reform efforts pose upside risks to growth.
"The UAE's sustained reform efforts support medium-term growth and a smooth energy transition, but prioritization and sequencing remain key to ensure effective outcomes. Advancing a medium-term fiscal framework, underpinned by careful coordination of emirate-specific fiscal anchors and rules, would promote long-term sustainability, and help meet climate policy challenges. Ongoing efforts to boost private sector employment, further develop the domestic capital market, and leverage trade and investment in digital and green initiatives will further advance diversification and lift medium-term growth . Building on recent improvements in economic data collection, sharing, and dissemination will buttress these efforts.
"The IMF team would like to express its appreciation to the authorities and other stakeholders for the open and fruitful discussions."
