Press Release No. 19/138

IMF Staff Concludes Visit to the United Arab Emirates

May 2, 2019

• The UAE economy continued to adjust last year, but green shoots are now emerging, with domestic credit growth, employment, and tourist arrivals showing improvement.
• The economy may now be at a turning point, supported by public spending…as well as by external tailwinds.
• Sustaining rapid growth after Expo 2020, and without policy stimulus, will require capitalizing on new growth drivers which in turn will require enhanced structural reforms.

An International Monetary Fund (IMF) mission led by Mr. Koshy Mathai visited the United Arab Emirates (UAE) from April 23 to May 1, 2019, to update itself on recent developments and the economic outlook and to discuss macroeconomic policies. Upon conclusion of the visit, Mr. Mathai issued the following statement:

“The economy continued to adjust last year. Corporate consolidation and structural reforms, including in large government-related entities (GREs) and commercial banks, as well as the fiscal position, weighed on aggregate demand.  Given the dollar peg, the dirham appreciated against currencies of major trading partners and interest rates rose in general. All this occurred against the backdrop of weaker external demand and intensified geopolitical tensions. Non-oil growth slowed to 1.3 percent in 2018, while the overall economy grew at 1.7 percent, benefiting from increased oil production.

“Some green shoots are now emerging, with domestic credit growth, employment, and tourist arrivals showing improvement recently, though the real estate sector continues to face an overhang of supply. The economy may now be at a turning point, supported by public spending—a substantial amount of Expo 2020 investment should be completed by end-year, some GREs are embarking on new investment plans, and implementation of emirate-level stimulus is expected to accelerate—as well as by external tailwinds (higher oil prices and the pause in Fed tightening). Against this background, growth could exceed 2 percent this year and approach 3 percent in 2020-21.

“The UAE economy has gone a long way toward diversification, but government spending and some sectors are still affected by oil price fluctuations. Sustaining strong growth after Expo 2020 and the fiscal stimulus will require capitalizing on new growth drivers that are decoupled from oil prices, and this in turn will require the authorities to build on their ongoing structural reform momentum. Some key areas of focus include the following:

• Reducing the footprint of the public sector. Leveling the playing field between GREs and private-sector participants will be key to boosting productivity growth and fostering diversification. Strengthening the enabling environment for SMEs and building on recent reforms to encourage foreign direct investment (FDI) are additional priorities.   

• Modernizing the labor market. Achieving sustainable, private-sector-led growth, while meeting the authorities’ objective of employing more nationals in the private sector, will require a more competitive and less fragmented labor market to ensure that talent is directed to its most productive uses. At the same time, the authorities should build on their existing efforts to ensure that the UAE continues to attract and retain expatriate talent.

• Strengthening the financial markets. The recent adoption of the federal debt law is welcome. Issuance of local-currency government securities should proceed in order to establish a benchmark yield curve. The central bank law was another major accomplishment, and the Central Bank of the UAE (CBUAE) should be commended for its efforts to strengthen the financial system, including by moving toward Basel III and adopting International Financial Reporting Standards (IFRS) 9.

• Fostering policy coordination and transparency. Improving information sharing among federal and emirate-level authorities and coordinating their decisions will lead to improved policy outcomes. A more explicit medium-term fiscal framework, involving rules guiding the balance between economic stabilization and saving for future generations, would also be beneficial. And sharing additional information on policymaking with the public could boost consumer and business confidence and help UAE fulfill its aspirations to be one of the world’s leading nations.

“The mission met H.E. Mubarak Al Mansoori, Governor of the Central Bank of the UAE; H.E. Younis Haji Al-Khoori, Undersecretary of the Ministry of Finance; H.E. Mohamed Al Hameli, Acting Undersecretary of the Abu Dhabi Department of Finance; H.E. Khalid Al Bustani, Director General of the Federal Tax Authority; and H.E. Huda Al Hashimi, Assistant to the Director General for Strategy and Innovation at the Prime Minister’s Office; along with other senior officials and private sector representatives.

“The IMF team wishes to thank the authorities for their hospitality and frank discussions.”