Press Release No. 22/43

IMF Executive Board Concludes the 2021 Article IV Consultations with the United Arab Emirates

February 17, 2022

Washington, DC: On November 22, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the 2021 Article IV consultation [1] with the United Arab Emirates.

The UAE moved quickly to address the health and economic effects of the pandemic. Widespread testing and containment measures helped limit the initial spread of the virus, while early vaccination efforts have resulted in vaccination rates among the highest globally. Fiscal and macro-financial support have provided relief to hard-hit sectors, SMEs, those in need, and the financial system over the past year and half, and some measures have been extended.

The economic recovery is gaining momentum, supported by the UAE’s early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020. Overall GDP growth is projected at 2.2 percent in 2021, driven by non-oil growth of 3.2 percent. Real oil GDP growth is expected to be close to zero this year in line with the OPEC+ agreement. Banks remain adequately capitalized, though asset quality has decreased somewhat and further balance sheet vulnerabilities, including from the COVID-19 crisis, may still lie ahead. Over the medium-term, growth is expected to accelerate with the benefit of structural reform efforts, increased foreign investment, and rising oil production.

The overall fiscal deficit is projected to narrow to 0.7 percent of GDP in 2021 and shift into a small surplus by 2024. These improvements reflect revenue gains from current and expected higher oil prices and stronger economic growth alongside modest fiscal reform efforts. Higher oil prices will also benefit the current account balance, which is projected to increase to 10 percent of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5 percent of GDP in the medium-term.

Strong reform efforts are underway with the ambitious UAE 2050 Strategy. Recent reforms to promote private sector growth and development are important to strengthen non-oil growth, boost productivity, and attract foreign investment. Going forward, careful prioritization and sequencing of reforms and enhancing collaboration across individual emirates are central to ensuring higher levels of future diversified, sustainable and inclusive economic growth.

Executive Board Assessment [2]

Executive Directors commended the authorities on a successful vaccination program and prompt policy response to combat the effects of the pandemic and welcomed the economic recovery underway. Noting that significant downside risks remain, they encouraged the authorities to pursue further efforts to maintain macro-financial stability, strengthen fiscal policy frameworks, foster economic diversification, and improve inter-generational equity and climate sustainability.

Directors agreed that accommodative policies should be maintained until the recovery is fully entrenched. Ensuring public health and supporting the most vulnerable remain top priorities. Once the recovery is established, Directors encouraged the authorities to implement a gradual, targeted, and growth-friendly fiscal consolidation, embedded in a credible medium-term framework. Such efforts would not only help ensure medium-term fiscal sustainability but also bolster inter-generational equity. In this context, they underscored the importance of careful coordination of emirate and federal fiscal anchors and enhanced dissemination of their data to improve transparency and governance. Strengthening collaboration, coordination and information sharing with government-related entities is also important.

Noting that the banking sector remains adequately capitalized, Directors called for continued monitoring of financial stability risks and digitalization challenges, including through strengthened macroprudential and regulatory frameworks. A Financial Sector Assessment Program update would be useful. Directors welcomed the progress made with the AML/CFT framework and encouraged the authorities to sustain the reform momentum.

Directors welcomed the new Dirham monetary policy framework which would help enhance monetary policy transmission. They also encouraged strong coordination between the government and the Central Bank of the United Arab Emirates to facilitate domestic capital market development.

Directors welcomed the UAE’s ambitious structural reform agenda, including recent initiatives to support private sector development. They noted that prioritization and well-sequencing of reform efforts would be important to help lift productivity and potential growth and facilitate economic diversification. In particular, Directors emphasized the importance of continued labor market reforms, including to raise female participation, strengthening the economy’s resilience to oil shocks, and accelerating climate change mitigation measures and adaptation plans. Enhanced collaboration across federal agencies and individual emirates as well as further improvements in coverage, timeliness, and availability of data and statistics, would improve transparency and governance and help the county achieve higher levels of inclusive, sustainable, and green growth.