IMF Staff Completes 2018 Article IV Mission to the United Arab Emirates
September 30, 2018
- Compared to 2017, growth is expected to strengthen over the next few years on higher oil prices, increased government spending, and stronger private credit growth.
- Fiscal easing is warranted in the near term; once the recovery gains momentum, a return to a path of gradual and growth-friendly fiscal consolidation would ensure sufficient savings for future generations.
- Continued reforms to promote the private sector and strengthen policy frameworks and coordination would improve medium-term prospects and diversify sources of growth.
An IMF team led by Ms. Natalia Tamirisa visited the UAE during September 18-30, 2018, to conduct discussions for the 2018 Article IV Consultation. Upon conclusion of the visit, Ms. Tamirisa issued the following statement:
“The UAE economy has been adapting well to a prolonged decline in oil prices since 2014. A gradual recovery in non-oil activity is under way. With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 percent this year and 3.7 percent next year. Inflation is projected at 3.5 percent this year owing to the introduction of the value-added tax and should ease afterwards. The fiscal deficit is expected to remain stable at about 1.6 percent of GDP this year and turn to a surplus next year. The current account surplus will exceed 7 percent of GDP this year.
“Given large fiscal buffers, ample spare capacity, and rising investment needs for Expo 2020, the government has appropriately switched to providing stimulus to the economy. Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity, would augment their impact on growth. Over the medium term, as the economic recovery gains momentum, a return to the path of gradual fiscal consolidation would help save an adequate portion of the exhaustible oil income for future generations. Continued improvements in spending efficiency and strengthening non-oil revenue, including by gradually replacing a system of numerous and regressive fees with corporate taxation, would help achieve these goals. In this context, the introduction of VAT in 2018 has been a historic milestone and is expected to substantially strengthen and diversify government revenues in the coming years.
“Improving medium-term growth and job prospects and advancing to a competitive knowledge-based economy require deepening and broadening structural reforms aimed at increasing the role of the private sector and fostering talent and innovation. The authorities’ recently announced plans to liberalize foreign investment, introduce long-term visas for professionals, and ease licensing requirements and business fees—once implemented—will be a welcome step in this regard. Other reform priorities include promoting competition, privatizing nonstrategic government-related enterprises (GREs), and improving the ecosystem for SME development and access to finance. In particular, developing domestic government debt markets would catalyze financial market development and expand sources of financing for SMEs. Enhancing the quality of education and healthcare and promoting gender equality would cultivate talent.
“Tightening financial conditions and increased global and regional uncertainty call for continued vigilance in monitoring financial sector risks, including those from a downturn in real estate and concentrated loan portfolios. Ensuring consistency of the draft central bank and banking laws with international best practices and approving them swiftly would buttress the prudential framework. Continued upgrading of bank regulations and strengthening bank supervision are essential to maintain the resilience of the banking system.
“Continued improvement of economic policy frameworks and coordination, and enhancing statistics would help align policies with the Vision 2021 goals for non-oil growth and further diversification of the economy. Stronger fiscal anchors would help mitigate the impact of adverse shocks on the economy while ensuring long-term growth, debt sustainability and saving for future generations. Better monitoring and analysis of contingent fiscal liabilities stemming from GRE borrowing, delays in payments, and public-private partnerships, would help mitigate risks. Further improvements in the frequency and quality of economic statistics would support policy-making and inform business decisions.
“The IMF team would like to express its appreciation to the authorities and other stakeholders for their hospitality and thoughtful discussions.”
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United Arab Emirates: Selected Macroeconomic Indicators, 2015–19 |
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(Quota: SDR 2,311.2 million as of June 2018) |
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(Population: 10.1 million, nationals: 1 million) |
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(Per capita GDP-2017: $37,879; poverty rate: n.a.; unemployment rate: 4.2% (2009)) |
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Est. |
Proj. |
Proj. |
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2015 |
2016 |
2017 |
2018 |
2019 |
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Exports of oil (including oil products, and gas) (in billions of U.S. dollars) |
61.5 |
46.5 |
58.1 |
75.4 |
84.9 |
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Average crude oil export price (in U.S. dollar per barrel) |
52.4 |
44.0 |
54.4 |
71.9 |
72.3 |
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Crude oil production (in millions of barrels per day) |
2.9 |
3.0 |
2.9 |
3.0 |
3.1 |
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(Annual percent change, unless otherwise indicated) |
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Output and prices |
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Nominal GDP (in billions of UAE dirhams) |
1,315 |
1,311 |
1,405 |
1,589 |
1,673 |
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Nominal GDP (in billions of U.S. dollars) |
358 |
357 |
383 |
433 |
456 |
|
Real GDP |
5.1 |
3.0 |
0.8 |
2.9 |
3.7 |
|
Real oil GDPU |
5.2 |
2.6 |
-3.0 |
2.9 |
3.1 |
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Real nonoil GDP |
5.0 |
3.2 |
2.5 |
2.9 |
3.9 |
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Real GDP of Abu Dhabi |
4.9 |
2.6 |
-0.5 |
2.7 |
3.4 |
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Real GDP of Dubai and Northern Emirates |
5.3 |
3.7 |
2.8 |
3.3 |
4.0 |
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CPI inflation (average) |
4.1 |
1.6 |
2.0 |
3.5 |
1.9 |
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(In percent of GDP) |
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Public finances |
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Revenue |
29.0 |
28.9 |
28.8 |
28.2 |
31.6 |
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Taxes |
12.5 |
8.9 |
11.9 |
13.3 |
16.8 |
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Other revenue 1/ |
16.2 |
19.6 |
16.6 |
14.6 |
14.5 |
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Expenditures |
32.4 |
30.9 |
30.4 |
29.9 |
29.8 |
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Expense 2/ |
29.7 |
27.9 |
27.8 |
27.1 |
26.7 |
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Net acquisition of nonfinancial assets |
2.7 |
3.0 |
2.6 |
2.7 |
3.1 |
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Net lending(+)/borrowing(-) (Revenue minus expenditures) |
-3.4 |
-2.0 |
-1.6 |
-1.6 |
1.8 |
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Adjusted nonoil primary balance 3/ |
-27.7 |
-21.9 |
-25.7 |
-30.0 |
-27.0 |
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Gross central government debt |
16.6 |
19.3 |
22.7 |
21.5 |
20.9 |
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Net of government deposits in the banking system |
3.6 |
4.5 |
7.7 |
5.8 |
4.1 |
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(Annual percent change) |
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Monetary sector |
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Net foreign assets |
-12.8 |
5.0 |
26.8 |
32.3 |
18.5 |
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Net domestic assets |
11.7 |
2.7 |
-1.8 |
-6.3 |
1.5 |
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Credit to private sector |
8.4 |
5.8 |
0.7 |
4.6 |
4.6 |
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Broad money |
5.5 |
3.3 |
4.1 |
3.6 |
7.1 |
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(Billions of U.S. dollars, unless otherwise indicated) |
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External sector |
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Exports and re-exports of goods, of which: |
300 |
295 |
309 |
329 |
343 |
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Oil |
61 |
46 |
58 |
75 |
85 |
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Nonoil, excluding re-exports |
104 |
103 |
104 |
105 |
106 |
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Imports of goods |
224 |
227 |
229 |
240 |
246 |
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Current account balance |
17.6 |
13.2 |
26.5 |
30.5 |
35.9 |
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Current account balance (in percent of GDP) |
4.9 |
3.7 |
6.9 |
7.1 |
7.9 |
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External debt (in percent of GDP) |
67.6 |
70.8 |
73.5 |
66.9 |
64.2 |
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Gross official reserves 4/ |
94.0 |
85.4 |
95.4 |
113.9 |
132.3 |
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In months of next year's imports of goods & services, net of re-exports |
6.7 |
6.0 |
6.0 |
7.0 |
7.8 |
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Memorandum items: |
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Local currency per U.S. dollar (period average) |
3.67 |
3.67 |
3.67 |
3.67 |
3.67 |
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Nominal effective exchange rate (2010 = 100) |
122.1 |
125.2 |
125.7 |
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Real effective exchange rate (2010 = 100) |
108.9 |
111.1 |
110.9 |
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Average exchange rate (AED per dollar) |
3.7 |
3.7 |
3.7 |
3.7 |
3.7 |
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Sources: UAE authorities; and IMF staff estimates. 1/ Includes staff estimates on profit transfers from the national oil company to SWF and SWF returns (investment income). 2/ Includes loans and equity to finance development projects. 3/ In percent of nonhydrocarbon GDP. Excludes staff estimates on SWF investment income. 4/ Banking system claims only. Excludes debt raised by federal and emirati governments in the international markets. 5/ Excludes staff estimates on foreign assets of sovereign wealth funds. |
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Randa Elnagar
Phone: +1 202 623-7100Email: MEDIA@IMF.org