Press Release No. 22/387

IMF Staff Completes 2022 Article IV Mission to United Arab Emirates

November 21, 2022

• Near-term economic growth is strong, underpinned by a rebound in domestic activity, while elevated oil prices support high surpluses in the fiscal and external balances. Inflationary pressures are expected to moderate gradually.
• Going forward, the overall fiscal stance should remain prudent while temporary cost of living support measures should continue to be well-targeted to those most in need. Uncertainties from ongoing tightening in global and domestic financial conditions underscore the importance of continued close monitoring of financial stability
• Reforms under the UAE 2050 Strategy should be sustained, with a focus on diversified and inclusive growth, to ensure a balanced approach to energy transition and maintain strong economic prospects amid global decarbonization efforts.

Abu Dhabi, UAE: A staff team from the International Monetary Fund (IMF), led by Mr. Ali Al-Eyd, held discussions with the UAE authorities for the 2022 Article IV Consultation from November 2 - 17, 2022. At the conclusion of the mission, Mr. Al-Eyd issued the following statement:

“Economic growth has been robust this year, led by a strong rebound in tourism, construction, and activity related to the Dubai World Expo, as well as higher oil production in line with the OPEC+ production agreements. Overall, GDP growth is projected to reach above 6 percent in 2022, improving from 3.8 percent in 2021. Inflation has risen with global trends and is expected to average just over 5 percent this year. Fiscal and external surpluses have increased further, benefiting from the higher oil prices as well as the removal of the temporary COVID-crisis related fiscal support to businesses and households as the pandemic has gradually waned. Increased global uncertainty led to larger financial inflows, contributing to rapid real estate price growth in some segments.

“Looking ahead, the UAE economic outlook remains positive, supported by domestic activity. We expect non-hydrocarbon growth to be around 4 percent in 2023 and to accelerate over the medium-term with the implementation of ongoing reforms. Inflationary pressures are projected to moderate gradually, including from the impact of tightening financial conditions. Further development of domestic capital markets, including through the issuance of local currency debt by the federal government will also support growth.

“Nevertheless, the outlook is subject to significant external uncertainties, including the impacts of global economic and financial headwinds, geopolitical developments, and the recently announced OPEC+ production cuts. However, higher oil prices and healthy fiscal buffers help mitigate risks, while enhancing reform efforts would pose upside risks to medium-term growth.

“Given the macroeconomic outlook, near-term policies should focus on ensuring sustainable growth and maintaining financial stability, while guarding against inflationary outcomes. In this connection, we welcome the targeting of temporary fiscal support to the most vulnerable to alleviate the impact from higher inflation but note the importance of maintaining a prudent overall fiscal stance, supporting efforts to mitigate inflation, and enhancing buffers to ensure medium-term sustainability.

“Banks have adequate capital overall and abundant liquidity, and asset quality has improved modestly from pandemic-era peaks. Domestic private sector credit growth has improved. Real estate price developments and expected further tightening of financial conditions underscore the importance of continued close monitoring of financial stability. We welcome continued efforts by the Central Bank of the United Arab Emirates to strengthen the macro-prudential framework and promote the effective management of non-performing loans.

“Major efforts have been advanced under the National AML/CFT Strategy and Action Plan to further strengthen the regulatory regime to ensure its effectiveness, in line with the enhanced monitoring under the Financial Action Task Force recommendations and should be continued.

“Looking to the medium-term, we welcome the planned fiscal reforms, including the expected introduction of a corporate income tax and gradual phasing out of business fee structures. These should be further advanced to underpin a gradual, growth friendly fiscal consolidation in the context of a strong medium-term fiscal framework to maintain fiscal sustainability. Enhancement and careful coordination of emirate-specific fiscal anchors and rules would ensure a unified national fiscal stance.

“Reforms under the UAE 2050 Strategy are welcome and should be sustained, with a focus on diversification of the economy, to ensure a balanced energy transition and strong long-term economic growth. Although the UAE has made significant progress on climate initiatives, prioritization should be given to low-carbon investments with the greatest economic significance and highest potential to reduce emissions and energy intensity. This will be aided by ongoing major investments in renewable energy sources and work to develop a green taxonomy and mainstream green and sustainable finance.

Ongoing structural reforms, such as those to support private sector employment and female labor force participation, increase trade and foreign investment, and harness the benefits of technology and education will help deliver sustainable and inclusive growth. Further enhancing cooperation across individual emirates, including on the collection, sharing, and dissemination of economic data, 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.”