IMF Executive Board Concludes 2012 Article IV Consultation with the United Arab Emirates

Public Information Notice (PIN) No. 12/49
May 16, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 14, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the United Arab Emirates.1


The recovery of the economy is continuing despite the uncertain global economic environment. High oil prices and increased production, strong growth in Asia, and the UAE’s perceived safe haven status in the context of the regional turmoil contributed to an estimated real GDP growth of 4.9 percent in 2011. Despite the continued weakness of the construction and real estate sectors in the wake of the 2009 crisis, real nonhydrocarbon growth picked up to an estimated 2.7 percent last year, supported by trade, logistics, and tourism. For 2012, oil production is projected to be flat, whereas nonoil growth is expected to strengthen further to 3.5 percent. Inflation remained low at 0.9 percent in 2011, mainly due to a continuing decline in housing rents, and price pressures are expected to remain subdued this year.

The Dubai World debt restructuring was completed, but several other troubled government-related entities (GRE) are still in the process of restructuring. GRE indebtedness, refinancing needs and reliance on foreign funding remain high, with about $30 billion GRE debt maturing this year and significant amount of debt falling due in 2014–15.

Despite the accommodative monetary stance under the peg to the U.S. dollar, lending to the private sector has remained sluggish as excess capacity in the real estate sector and the debt overhang still limit lending opportunities. The banking sector has remained well-capitalized and profitable, despite a continued rise in nonperforming loans and higher provisioning.

Executive Board Assessment

Executive Directors welcomed the continued economic recovery and favorable near-term outlook, but noted downside risks from the uncertain global environment and regional geopolitical tensions. Going forward, Directors encouraged the authorities to continue their efforts to sustain growth and diversify the economy, while maintaining macroeconomic and financial stability.

Directors regarded the fiscal stance as appropriately focused on a gradual consolidation to unwind the large fiscal stimulus undertaken in response to the 2009 crisis without undermining the economic recovery. They particularly welcomed the consolidation plans in Dubai, which will help improve the emirate’s debt sustainability in the face of contingent liabilities related to government-related entities (GRE) and the still weak real estate market. Noting the recent federal salary hike and the planned increases in development spending in Abu Dhabi, Directors emphasized the importance of managing the composition of public expenditure carefully. They commended the authorities’ efforts to strengthen coordination of fiscal policies between the federal and emirate governments.

Directors agreed that a continued accommodative monetary stance under the peg to the U.S. dollar would counteract fiscal tightening and support the economic recovery. They took note of the staff assessment that the exchange rate has remained broadly aligned with fundamentals, and agreed that the exchange rate peg continues to serve as an effective nominal anchor for the economy.

Directors noted the progress made in restructuring and managing the debt of GREs, but stressed the need for further efforts to mitigate the fiscal risks posed by these entities. They cautioned that GREs are still faced with high refinancing needs and are reliant on foreign funding. In this context, Directors encouraged further deleveraging and strengthening of impaired GRE balance sheets, increased transparency, and improvements in corporate governance at GREs.

Directors took note of the resilience of the banking sector grounded on ample liquidity and capital buffers. They nonetheless encouraged the authorities to continue monitoring closely the financial situation of individual banks and their ability to cope with adverse shocks. Directors emphasized the importance of shielding the banking system from taking further GRE-related risks, including by avoiding channeling bank funding to non-viable GREs. In this regard, they welcomed the recent introduction of aggregate lending limits to GREs. Directors also suggested further strengthening the governance framework for the financial sector. Looking forward, they encouraged the development of domestic debt markets, which would among other things support banks’ liquidity management in preparation for the introduction of the Basel III liquidity framework.

Directors welcomed the authorities’ efforts to strengthen the statistical base, including the plans for improving the national accounts, balance of payments, fiscal accounts, and labor market statistics.

United Arab Emirates: Selected Macroeconomic Indicators, 2008–12 1


  2008 2009 2010 2011 2012
  (Annual percent change, unless otherwise indicated)

Output and prices


Nominal GDP (billions of UAE dirhams)

1,156 993 1,093 1,323 1,419

Nominal GDP (billions of U.S. dollars)

315 270 298 360 386

Real GDP (at factor cost)

5.3 -3.3 0.9 4.9 2.3

Real oil and gas GDP

1.6 -9.9 -1.5 9.2 0.0

Real non-oil GDP

6.3 0.6 2.1 2.7 3.5

CPI inflation (average)

12.3 1.6 0.9 0.9 1.5
  (Percent of GDP, unless otherwise indicated)

Public finances



39.0 25.7 28.7 33.3 34.6


31.2 17.5 21.4 27.4 28.5


7.9 8.2 7.2 5.9 6.1

Expenditure and net lending

22.3 38.0 30.8 30.4 26.9

Budget balance

16.8 -12.3 -2.1 2.9 7.7

Non-hydrocarbon balance 2

-22.9 -42.0 -34.3 -41.0 -35.2
  (Annual percent change)

Monetary sector


Credit to private sector

49.3 0.7 1.2 2.3 3.1

Broad money

19.2 9.8 6.2 5.0 7.1
  (Billions of U.S. dollars, unless otherwise indicated)

External sector


Exports of goods

240 192 212 279 307

Oil and gas

103 68 75 112 122

Imports of goods

-176 -150 -161 -198 -217

Current account balance

24.8 9.1 9.1 33.3 40.0

Current account balance (percent of GDP)

7.9 3.4 3.1 9.2 10.3

Gross official reserves

30.9 25.5 32.8 36.4 40.8

In months of next year imports of goods and services

2.0 1.5 1.6 1.6 1.7

Real effective exchange rate (2000=100)

102.9 107.2 102.7 95.3 ..

Sources: UAE authorities; and IMF staff estimates.

1 Projections are based on information received through November 2009.

2 In percent of non-hydrocarbon GDP.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100