## 1areea2023001

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### Recent macroeconomic developments
- Growth (2022):
  - Non-hydrocarbon GDP growth expected to reach 5.3 percent in 2022.
  - Hydrocarbon GDP expected to grow by 11.1 percent in 2022.
  - Overall growth expected to reach 6.9 percent in 2022.
- Inflation and monetary policy:
  - Inflation expected to average 4.9 percent in 2022, the fastest pace since 2008.
  - Contributors: imported inflation, stronger economic activity, higher fuel costs, elevated food prices, rising housing costs.
  - Real estate prices: Dubai at 21 percent y/y in October (2022).
  - Authorities doubled social welfare spending and subsidies for low-income households to 1.5 percent of GDP, including inflation assistance for food and energy costs.
  - CBUAE hiked policy rates by 425 bps in 2022.
- External sector and buffers:
  - Current account surplus expected to reach 11.7 percent of GDP in 2022.
  - Financial account deficit expected to widen in 2022 with a strong increase in capital outflows.
  - Foreign reserves at 7.2 months of imports (end-2022).
  - Real effective exchange rate appreciated by 2.5 percent as of end-November 2022.
- Fiscal position and public debt:
  - General government fiscal balance turned to a surplus of 4 percent of GDP in 2021 and expected to reach around 9 percent of GDP in 2022.
  - Public debt expected to decline to 30.2 percent of GDP in 2022 from 35.9 percent of GDP in 2021.
  - Since borrowing began in 2021, the UAE federal government issued USD 7 billion in international and AED 9 billion in domestic bonds.
- Financial conditions and banking sector:
  - Sovereign spreads around 180 bps as of December 2022.
  - Net foreign assets increased by 170 percent y/y as of September 2022.
  - NPLs: 6.9 percent in Q2 2022; 60 percent of NPLs covered by specific provisions.
  - Comprehensive bank exposure to real estate ~23 percent of credit risk-weighted assets; construction and real estate sectors constitute 19 percent of total bank loans.

### Outlook and risks
- Growth projections:
  - Overall GDP projected to grow 3.6 percent in 2023.
  - Non-hydrocarbon growth projected at 3.8 percent in 2023.
  - Hydrocarbon GDP growth projected at 3.0 percent in 2023 (based on October 2022 OPEC+ agreement).
- Inflation and fiscal/external outlook:
  - Inflation expected to ease to 3.4 percent in 2023.
  - General government fiscal balance projected to average 3.8 percent of GDP over the medium term.
  - Adjusted non-hydrocarbon primary deficit expected to improve by 2.2 p.p. to 20.4 percent of non-hydrocarbon GDP over 2023-2027 with revenue mobilization, including phased introduction of Corporate Income Tax from 2023.
  - Current account surplus projected to narrow in 2023 but remain positive, averaging 6.9 percent of GDP over the medium term.
- Key uncertainties and risks:
  - Global uncertainties: COVID waves, geopolitical developments, spillovers from weaker global growth and tighter financial conditions.
  - A global recession could reduce oil demand, tourism, and trade—pressuring oil prices, UAE fiscal and external balances, and vulnerable corporates and GREs.
  - Uncertainties over global climate policies: faster-or more-turbulent-than-anticipated move away from hydrocarbons could drive oil price volatility and strain buffers and public finances.

### Climate transition challenges and policy implications
- Structural exposure to hydrocarbons:
  - Direct hydrocarbon revenues amount to over 60 percent of total fiscal revenues.
  - Oil exports are over 15.9 percent of total exports of goods and services.
- Uncertainty in long-term oil price pathways:
  - Pace of global decarbonization and oil demand/supply dynamics could drive long-term oil prices to either very low or very high levels.
- UAE climate strategy and commitments:
  - UAE pursuing UAE Green Strategy, hosting COP28, NDCs, US-UAE Partnership for Accelerating Clean Energy.
  - Committed to net zero emissions by 2050; staff analysis indicates current NDC targets must be accelerated to reach net zero.
  - ADNOC plans to increase oil production by 1 mbpd to 5 mbpd by 2027 and aims to double LNG export capacity; extraction processes to be “made greener” via renewables and carbon-capture technology.
- Policy areas to enhance resilience to transition risks:
  - Boost non-hydrocarbon revenue, increase public spending efficiency, and wind down subsidies.
  - Gradual adoption of green principles in public financial frameworks.
  - Develop green and sustainable finance.
  - Fully integrate costs and benefits of climate policies into policy frameworks.
  - Enhance disaster risk management strategies to manage physical climate risks.

### Downside scenario: accelerated global decarbonization (illustrative)
- Scenario description:
  - Accelerated global decarbonization leading to declining oil demand and very low future oil prices and production.
- Macroeconomic and financial implications:
  - Fiscal revenue and financial buffers increasingly strained, limiting policy space.
  - Eroded resilience to shocks and potential adverse debt dynamics.
- Required policy responses:
  - Strengthen UAE-wide medium-term fiscal frameworks with coordinated fiscal anchors and policy rules across emirate and federal levels.
  - Additional efforts to boost non-hydrocarbon revenue, improve spending efficiency, and wind down subsidies.
  - Adopt green principles in public financial management and accelerate diversification and green investment.

### Financial system vulnerabilities and climate risk management
- Potential impacts:
  - Deteriorating asset quality linked to carbon-intensive activities; risk of stranded assets.
- Prudential and supervisory priorities:
  - Incorporate climate risk scenarios into bank stress tests.
  - Provide regulatory clarity and enabling environment for green investment.
  - Publish principles and taxonomy of sustainable finance developed by the Sustainable Finance Working Group.
- Ongoing and planned actions:
  - Sustainable Finance Working Group developing taxonomy principles, sustainability-focused corporate governance, and strengthened disclosure.
  - CBUAE incorporating climate stress testing for banks and plans stress testing for the insurance sector in 2024.

### Safeguarding medium-term financial stability
- Recommended actions:
  - Regular stress testing and forward-looking balance sheet assessments.
  - Continue close monitoring of bank exposures to real estate; reevaluate the 30 percent guiding threshold.
  - Consider capital add-ons for large sectoral concentrations where appropriate.
  - Promote management of legacy NPLs, including asset sales.
  - Continue work on Resolution and Recovery Framework toward implementation.
  - Enhance systemic risk analysis of non-bank financial intermediation and strengthen insurance sector regulation.
- Market and monetary infrastructure:
  - Fully implement the Dirham Monetary Framework.
  - Continue issuance of local currency federal debt, including longer maturities and Shariah compliant instruments, supported by cooperation with the CBUAE and its Monetary Bills program.

### Digital innovation, AML/CFT, and institutional steps
- Digital finance:
  - CBUAE activities on wholesale and retail CBDC and broader financial infrastructure innovation should have clear policy objectives and design safeguards.
  - Effective oversight of new fintech actors and regulatory clarity required; collaboration with Supervisory Authorities of financial free zones important.
- AML/CFT:
  - Major efforts advanced under the FATF action plan and the National AML/CFT Strategy; swift resolution of remaining deficiencies important to exit enhanced monitoring.
- Institutional monitoring:
  - Staff welcome CBUAE steps to incorporate climate risks into stress tests and SFWG’s work on taxonomy and disclosure.

### Reinforcing long-term fiscal sustainability and energy transition finance
- Fiscal consolidation guidance:
  - A growth friendly and credible medium-term average annual consolidation of the non-hydrocarbon primary fiscal deficit of around 0.4 percent of non-hydrocarbon GDP is recommended.
- UAE 2050 Energy Strategy financing need:
  - AED 600 billion (US$163 billion, or 52.1 percent of 2021 nonhydrocarbon GDP).
- Risks without alternative financing:
  - Investments to meet these goals without offsetting fiscal measures or alternative financing would result in higher non-hydrocarbon primary deficits during the transition period and lower net public financial wealth.
- Alternative financing strategies:
  - Rely more on green and sustainable private finance; mainstream private sector green finance.
- Policy levers:
  - Tax policies, gradual removal of subsidies, green public investment management, Climate-PIMA (budget tagging), and consideration of climate taxation.
  - Carbon tax (or ETS emissions price) estimate: in the order of $75 per ton by 2030 consistent with intermediate emissions objectives (in the absence of other mitigation measures).

### Fiscal transparency, governance, and data priorities
- Data and publication priorities:
  - Publish consolidated general government budget plans, budget outcomes and reconciliation, and sectoral spending on a regular schedule.
  - Publish the hydrocarbon revenue management strategy.
  - Enhance data sharing, harmonization of fiscal statistics, and compilation and dissemination of central and general government debt, contingent liabilities (including PPPs), and overall public sector balance sheet.
- IMF staff recommendations:
  - Adopt a transparent, rules-based UAE-wide fiscal framework; enhance and coordinate emirate-specific frameworks and anchors.
  - Enhance sovereign asset-liability management and align SWFs with MTFFs.
  - Coordinate fiscal framework with UAE 2050 Strategies to account for reform investment needs and growth benefits.

### Structural reform agenda to support growth and diversification
- Potential gains:
  - Medium-term non-hydrocarbon growth could be boosted by up to 4 percentage points from coordinated reforms increasing productivity from trade, FDI, and digitalization.
- Recommended reforms:
  - Trade and FDI: leverage recent CEPAs and reforms to boost FDI.
  - Labor and product markets: modernize labor markets, enhance workers’ rights, continue education reforms, encourage business dynamism, reform unemployment benefits and pension schemes, and ensure sufficient social safety nets, including for expatriates.
  - Gender-positive policies: continue closing gender gaps and encourage female labor participation.
  - Digitalization: implement the Digital Economy Strategy to double the contribution of the digital economy to 19.7 percent of GDP by 2031; invest in eCommerce, IT infrastructure, electronic payment systems, and public-private collaboration.
- Measurement and verification:
  - Develop, standardize, and publish MRV methodology tracking mitigation outcomes reflected in NDCs.

### Debt sustainability and public sector debt composition
- Key debt indicators and developments:
  - General government debt-to-GDP decreased to an estimated 30.2 percent of GDP in 2022.
  - Abu Dhabi and Dubai debt: estimated 18.6 and 7.9 percent of UAE GDP in 2022, respectively.
  - Debt of majority state-owned non-bank GREs estimated at 25.3 percent of GDP in 2022.
  - Including GREs’ debt brings UAE gross public debt to 55.5 percent of GDP in 2022.
  - Share of foreign debt increased by 2.4 p.p. to an estimated 55.8 percent of total UAE debt in 2022.
- Federal debt issuance (2022):
  - First local currency debt in May 2022: AED 1.5 billion (two tranches: AED 750 million two-year, AED 750 million three-year).
  - July 2022: USD 3 billion in USD denominated bonds maturing 2032 and 2052.
  - As of December 2022, UAE federal government debt stood at 1.9 percent of GDP.
- Contingent liabilities and GREs:
  - For Dubai, including a contingent liability from a majority state-owned bank increases its debt ratio to 23.4 percent of UAE GDP.
  - Recommendations: collect regular information for fiscal risk analysis, require approval of GREs’ borrowing/investment plans, set dividend payout rules, clear criteria for guarantees, PPP risk allocation guidelines, and consider incorporating GREs and SWFs in overall fiscal targets.

### External sector assessment and reserves
- External position:
  - External position in 2022 estimated to be broadly in line with medium-term fundamentals.
  - NIIP estimated at $673.9 billion (162.4 percent of GDP) at end-2021; expected to increase to $740.0 billion (145.9 percent of GDP) by end-2022.
- Current account and oil:
  - Current account expected to increase from 11.6 percent of GDP in 2021 to 11.7 percent of GDP in 2022.
  - Oil production estimated to grow by 15 percent on average in 2022.
  - Average oil export price assumed to be USD 99.6 a barrel in 2022 (USD 70.8 a barrel in 2021).
- Reserves and exchange rate:
  - Gross FX reserves expected to remain around USD 130 billion (25.2 percent of GDP, 7.2 months of imports and 74 percent of the Fund’s reserve adequacy metric) at end-2022.
  - Dirham peg: pegged to the US dollar at a rate of 3.6725 since November 1997.
  - REER appreciated by 2.5 percent as of end-November 2022; NEER appreciated by 10.0 percent.
  - Staff assessment: REER assessed to be overvalued by about 1.0 percent with a range of -0.8 to 2.9 percent.

### Risk Assessment Matrix — selected global risks and policy responses
- Intensifying spillovers from Russia’s war in Ukraine:
  - Likelihood/Time Horizon: High/Short-to-Medium-Term.
  - Policy responses: temporarily loosen fiscal stance for targeted support; prepare consolidation measures; encourage access to cheaper suppliers; advance structural reforms.
- Commodity price shocks:
  - Likelihood/Time Horizon: High/Short-to-Medium-Term.
  - Policy responses: adhere to fiscal rules, replenish buffers, advance fiscal structural reforms, continue CBUAE monetary tightening in line with Fed.
- De-anchoring of inflation expectations and stagflation:
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term.
  - Policy responses: calibrate fiscal policy, strengthen fiscal risk management and GRE oversight, monitor financial system risks.
- Abrupt global slowdown or recession:
  - Likelihood/Time Horizon: Medium-to-High/Short-to-Medium-Term.
  - Policy responses: temporarily loosen fiscal stance for targeted support, ensure financial stability, accelerate structural reforms, improve social safety nets.
- Natural disasters related to climate change:
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term.
  - Policy responses: scale up adaptation investments, incorporate climate risks in prudential policies, save windfall revenue, pursue fiscal structural reforms.
- Cyberthreats:
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term.
  - Policy responses: integrate cybersecurity risks into CBUAE and freezone frameworks; enhance cyber risk mitigation.

### Inflation dynamics (key analytical findings)
- Historical behavior:
  - Since 2009, inflation has been less than or around 3 percent a year except in 2015.
- GVAR model results:
  - GVAR coverage: 38 countries covering about 90 percent of the world GDP.
  - Estimated pass-through: 1 percentage point increase in inflation abroad -> 0.35 percentage point increase in UAE inflation (historical estimate).
  - UAE CPI expected increase in 2022 attributable to foreign inflation: between 0.8 and 1.3 percentage points.
- Subsidy reforms:
  - Higher pass-through of international oil prices into domestic inflation after 2015 fossil fuel subsidy reforms; fuel prices set monthly based on global prices.

### Data and statistical capacity priorities
- Improvements needed:
  - Produce quarterly GDP and monthly CPI on a timely basis.
  - Finalize CPI basket weights revision by end Q1 2023.
  - Increase timeliness, periodicity, and coverage of national accounts, fiscal sector, and external sector statistics.
  - Ongoing TA on external sector statistics should be pursued and CBUAE should provide adequate staffing.
- Data dissemination status:
  - UAE launched a National Summary Data Page (NSDP) in July 2018; working toward SDDS subscription.
  - Key data observation dates: CPI latest observation 12/2021 (received 05/2022); revenue/expenditure latest observation 06/2022 (received 09/2022); central bank gross foreign assets series includes values through 2027 in staff tables.

*Source: IMF staff report excerpts from "1. Addressing Long-Term Climate Transition Challenges" (PDF content provided).*

### 1. Addressing Long-Term Climate Transition Challenges__________________________________________ 9

### 1. Addressing Long-Term Climate Transition Challenges

### Recent macroeconomic developments
- Near-term growth:
  - Non-hydrocarbon GDP growth expected to reach 5.3 percent in 2022, driven by tourism, Dubai World Expo spillovers, Football World Cup in Qatar spillovers, and ongoing government expenditure.
  - Hydrocarbon GDP expected to grow by 11.1 percent in 2022, following the OPEC+ agreement.
  - Overall growth expected to reach 6.9 percent in 2022.
- Inflation and monetary policy:
  - Inflation expected to average 4.9 percent in 2022, the fastest pace since 2008.
  - Contributors: imported inflation, stronger economic activity, higher fuel costs, elevated food prices, rising housing costs.
  - Real estate prices rose rapidly—Dubai at 21 percent y/y in October.
  - Authorities doubled social welfare spending and subsidies for low-income households to 1.5 percent of GDP, including inflation assistance for food and energy costs.
  - CBUAE hiked policy rates by 425 bps in 2022, following US Fed policy actions in line with the exchange rate peg.
- External sector and buffers:
  - Current account surplus expected to reach 11.7 percent of GDP in 2022 due to high oil prices.
  - Financial account deficit expected to widen in 2022 with a strong increase in capital outflows reflecting overseas investment of oil revenues.
  - Foreign reserves at 7.2 months of imports.
  - Real effective exchange rate appreciated by 2.5 percent as of end-November 2022.
  - External position in 2022 expected to be broadly in line with level implied by medium-term fundamentals and desirable policies (Annex IV).
- Fiscal position and public debt:
  - General government fiscal balance turned to a surplus of 4 percent of GDP in 2021 and expected to reach around 9 percent of GDP in 2022.
  - Public debt expected to decline to 30.2 percent of GDP in 2022 from 35.9 percent of GDP in 2021 (Annex III).
  - Since borrowing began in 2021, the UAE federal government issued USD 7 billion in international and AED 9 billion in domestic bonds.
- Financial conditions and banking sector:
  - Sovereign yields have risen, spreads around 180 bps as of December 2022 (below EM average of 450 bps).
  - Banks remain adequately capitalized and liquid, with improved profitability from higher interest income and moderate private credit growth.
  - Net foreign assets increased by 170 percent y/y as of September, partly due to oil-related revenues.
  - NPLs decreased from pandemic peak but remain elevated at 6.9 percent in Q2 2022; 60 percent of NPLs covered by specific provisions.
  - Comprehensive bank exposure to real estate ~23 percent of credit risk-weighted assets; construction and real estate sectors constitute 19 percent of total bank loans.

### Outlook and risks
- Growth projections:
  - Overall GDP projected to grow 3.6 percent in 2023.
  - Non-hydrocarbon growth projected at 3.8 percent in 2023.
  - Hydrocarbon GDP growth projected at 3.0 percent in 2023 based on October 2022 OPEC+ agreement.
- Inflation and external/fiscal outlook:
  - Inflation expected to ease to 3.4 percent in 2023.
  - General government fiscal balance projected to average 3.8 percent of GDP over the medium term.
  - Adjusted non-hydrocarbon primary deficit expected to improve by 2.2 p.p. to 20.4 percent of non-hydrocarbon GDP over 2023-2027 with revenue mobilization, including phased introduction of Corporate Income Tax from 2023.
  - Current account surplus projected to narrow in 2023 but remain positive, averaging 6.9 percent of GDP over the medium term.
  - Nonhydrocarbon exports (excluding re-exports) expected to increase over medium term supported by CEPAs and other structural reforms.
- Key uncertainties and risks:
  - Global uncertainties: COVID waves, geopolitical developments, spillovers from weaker global growth and tighter financial conditions (Annex V).
  - A global recession could reduce oil demand, tourism, and trade—pressuring oil prices, UAE fiscal and external balances, and vulnerable corporates and GREs.
  - Uncertainties over impacts of global climate policies: a faster-or more-turbulent-than-anticipated global move away from hydrocarbons could drive oil price volatility and impact global oil demand, straining buffers and public finances.

### Climate transition challenges and policy implications (Box 1 summary)
- Structural exposure to hydrocarbons:
  - Direct hydrocarbon revenues amount to over 60 percent of total fiscal revenues.
  - Oil exports are over 15.9 percent of total exports of goods and services.
  - Indirect effects from hydrocarbon activities (liquidity, investment spillovers, confidence) also support growth.
- Uncertainty in long-term oil price pathways:
  - Pace of global decarbonization and oil demand/supply dynamics could drive long-term oil prices to either very low or very high levels, creating significant challenges for oil producers.
  - Extreme price movements could materialize via global demand shocks (lower prices) or global supply shocks (higher prices), with likely mixed dynamics.
- UAE climate strategy and commitments:
  - UAE pursuing UAE Green Strategy, hosting COP28, NDCs, US-UAE Partnership for Accelerating Clean Energy.
  - Committed to net zero emissions by 2050; staff analysis indicates current NDC targets must be accelerated to reach net zero.
  - Domestic mitigation/adaptation efforts: investing in renewables, implementing green building codes, building climate resilient infrastructure.
  - ADNOC announced plans to increase oil production by 1 mbpd to 5 mbpd by 2027 and aims to double LNG export capacity; extraction processes to be “made greener” via renewables and carbon-capture technology.
- Policy areas to enhance resilience to transition risks:
  - Boost non-hydrocarbon revenue, increase public spending efficiency, and wind down subsidies.
  - Gradual adoption of green principles in public financial frameworks.
  - Develop green and sustainable finance.
  - Fully integrate costs and benefits of climate policies into policy frameworks.
  - Enhance disaster risk management strategies to manage physical climate risks.

### Downside scenario: accelerated global decarbonization (illustrative implications)
- If global decarbonization is accelerated to meet Net Zero Emissions targets sooner:
  - Declining oil demand would drive future oil prices and production to very low levels.
  - Macroeconomic and financial implications:
    - Fiscal revenue and financial buffers increasingly strained, limiting policy space to spur growth and diversification.
    - Eroded resilience to shocks and potential adverse debt dynamics.
  - Required policy responses:
    - Strengthen UAE-wide medium-term fiscal frameworks with coordinated fiscal anchors and policy rules across emirate and federal levels.
    - Additional efforts to boost non-hydrocarbon revenue, improve spending efficiency, and wind down subsidies.
    - Adopt green principles in public financial management and accelerate diversification and green investment to mitigate vulnerabilities.

*Source: IMF staff report excerpts from "1. Addressing Long-Term Climate Transition Challenges" (PDF content provided).*

### Box 1. United Arab Emirates: Addressing Long-Term Climate Transition Challenges

### Box 1. United Arab Emirates: Addressing Long-Term Climate Transition Challenges

### Climate transition impacts and required responses
- External balances would weaken through lower oil prices and production and declining global trade in fossil fuels; financial flows could be also affected.
- Cross-border spillovers from permanently reduced foreign oil demand would depress upstream investment; the related investment reduction could soften the impact of lower oil exports on the current account as they are highly import intensive.
- Aggregate productivity and long-term growth would need to be supported through structural reforms and investment in other sectors.
- Critical diversification and transition measures identified:
  - Intensified reform efforts to diversify the economy, including by front-loading investments in green technologies, developing renewable energy sources, greening the extraction of fossil fuels, and fostering non-hydrocarbon trade and FDI.
  - Leveraging opportunities in aviation, environment, hospitality, logistics, building and construction, financial services, and digital trade.
  - Aligning public financial management (“green PFM”) and public investment management (climate-PIMA) with UAE NDCs targets and National Net Zero by 2050 Pathway.
  - Fostering alternative financing strategies, including relying more on green and sustainable private finance.
- Exchange rate policy:
  - Although the exchange rate peg currently remains appropriate and provides a credible monetary anchor, over the longer-term, the non-hydrocarbon sector could be supported by a more flexible exchange rate.

### Financial system vulnerabilities and climate risk management
- The financial system would face challenges from deteriorating asset quality linked to carbon-intensive activities and weaker overall growth, potentially resulting in stranded assets and further erosion of financial wealth.
- Prudential and supervisory priorities:
  - Adapt prudential policies to recognize systemic climate risk, including requirements for financial institutions to incorporate climate risk scenarios into their stress tests.
  - Provide regulatory clarity and an enabling environment for green investment.
  - Publish principles and taxonomy of sustainable finance developed by the Sustainable Finance Working Group to improve exposure assessment and sustainability disclosure.
- Ongoing efforts:
  - The Sustainable Finance Working Group is developing principles for a taxonomy, sustainability-focused corporate governance, and strengthened disclosure.
  - The CBUAE is incorporating climate stress testing for banks and plans similar stress testing for the insurance sector in 2024.

### Authorities’ near-term outlook and views
- Authorities broadly shared staff’s macroeconomic outlook but expect stronger near-term GDP growth, citing a strong rebound in tourism and activity related to global events, with a much stronger boost to non-hydrocarbon growth in 2022 and the medium term from manufacturing, logistics, and hospitality.
- Despite October 2022 OPEC+ production cuts, authorities expect stronger hydrocarbon GDP growth in the near-term and accelerated plans to reach oil production capacity of 5 mbpd by 2027 instead of by 2030.
- Authorities agreed that inflation is projected to moderate gradually and underscored the need for a continued balanced approach to energy transition.

### Policy discussions and near-term recommendations
- Policy priorities:
  - (i) maintaining fiscal discipline and withdrawing remaining crisis-related measures;
  - (ii) safeguarding financial stability post-COVID and amid climate risks;
  - (iii) strengthening fiscal policy frameworks while considering macro-fiscal and macro-financial implications of energy transition;
  - (iv) leveraging gains from structural reforms for diversified, green, and inclusive growth.
- Near-term policy bullets:
  - Maintain a prudent overall fiscal stance; prudently manage higher hydrocarbon revenues to avoid procyclical outcomes and enhance fiscal buffers.
  - The planned introduction of a CIT is an important reform to increase fiscal transparency and allow withdrawal of opaque fees.
  - Continue well-targeted temporary inflation support measures and revisit them as price pressures subside.
  - Continue close monitoring of financial stability; supervisors should encourage prompt recognition of asset quality deterioration and adequate provisions.
  - Gradually scale back remaining crisis support measures under the Targeted Economic Support Scheme (TESS), the Reserve Requirement and LTV ratios while avoiding pro-cyclical outcomes. The setting of the new Reserve Requirement ratio should consider effects on market liquidity and the interbank market to support full implementation of the new Dirham Monetary framework.
  - Policies should remain flexible to respond to adverse shocks; in a significant slowdown, fiscal space should support non-hydrocarbon growth by frontloading and scaling-up green investment and improving energy-intensive sector efficiency.
  - The CBUAE should be ready to use the full flexibility of its monetary framework and macro-prudential tools while monitoring financial stability risks.

### Box 2 — Risks from Tightening Financial Conditions: key findings
- Global and UAE financial conditions tightened recently, transmitting through direct and indirect channels.
- Direct channel example:
  - UAE 3-month EIBOR increased by about 4 percentage points to 4.5 percent during March to November 2022.
- Impacts of rising rates:
  - Household and corporate debt servicing capacity and credit demand could be affected; most borrowing is variable rate.
  - GREs have about $33 billion in bonds and loans maturing in 2023 and 2024 ($84 billion in following years).
  - GREs’ borrowing from banks increased around 16 percent y/y in October 2022.
  - Capital flows: interest-sensitive capital could reverse as global conditions tighten.
  - Banks’ balance sheets: rising rates lower the net present value of future cash flows but may be offset by higher interest margins.
- Indirect channels: slower global growth and adverse market conditions could reduce trade and oil prices, affecting the UAE as a major trade hub.
- Risk containment observations:
  - The rise in real estate prices has mostly been in high-end segments; in Dubai only about 40 percent of residential real estate sales have been financed through mortgages.
  - Around 60 percent of NPLs are covered by specific provisions.
  - Some NPL sales by banks are being recorded; GREs have been extending debt maturities.
  - Stress testing is recommended to pre-empt and mitigate risks from high interest rates.

### Safeguarding medium-term financial stability
- Banks are overall well placed to absorb shocks, but continued efforts are needed to strengthen macro-prudential and regulatory frameworks.
- Recommended actions:
  - Regular stress testing and forward-looking balance sheet assessments.
  - Continue close monitoring and assessment of bank exposures to real estate, including reevaluating the 30 percent guiding threshold.
  - Consider capital add-ons for large sectoral concentrations where appropriate.
  - Promote effective management of legacy NPLs, including asset sales.
  - Continue work on the Resolution and Recovery Framework toward implementation.
  - Enhance systemic risk analysis into non-bank financial intermediation and strengthen insurance sector regulation and supervision.
- Market and monetary infrastructure:
  - Fully implement the Dirham Monetary Framework in line with IMF Technical Assistance on liquidity management.
  - Continue issuance of local currency federal debt, including through longer maturities and Shariah compliant instruments, supported by cooperation with the CBUAE and its Monetary Bills program to develop an effective domestic yield curve.

### Digital innovation, AML/CFT, and institutional steps
- Digital finance:
  - CBUAE activities on wholesale and retail CBDC and broader financial infrastructure innovation should be underpinned by clear policy objectives and design safeguards for monetary and financial stability.
  - Effective oversight of new fintech actors and regulatory clarity are required; collaboration with Supervisory Authorities of financial free zones is important.
- AML/CFT:
  - Major efforts advanced under the FATF action plan and the National AML/CFT Strategy; swift resolution of remaining deficiencies is important to exit enhanced monitoring.
- Institutional monitoring:
  - Staff welcome CBUAE steps to incorporate climate risks into stress tests and the Sustainable Finance Working Group’s work on taxonomy and disclosure.

### Reinforcing long-term fiscal sustainability
- Progress needed on fiscal structural reforms to reinforce long-term fiscal sustainability and meet climate transition challenges, including strengthening public finances, developing and greening a uniform medium-term fiscal framework (MTFF), and fostering sustainable finance.
- Fiscal consolidation guidance:
  - A growth friendly and credible medium-term average annual consolidation of the non-hydrocarbon primary fiscal deficit of around 0.4 percent of non-hydrocarbon GDP would be consistent with supporting government reform efforts under the 2050 Strategy and National Net Zero by 2050 Pathway, further enhancing fiscal buffers, reducing public debt burdens, and avoiding procyclicality.

*Source: Box 1. United Arab Emirates: Addressing Long-Term Climate Transition Challenges (concluded).*

### 26.      Public finances should be further strengthened by continuing to advance important

### 1areea2023001 - 26.      Public finances should be further strengthened by continuing to advance important

### Revenue-side reforms
- Continue to broaden the tax base and improve the efficiency of tax collection and administration, including via further digitalization and further enforcement and enhancement of existing taxes.
- Phased implementation and support measures:
  - The economic impacts of CIT will be gradual and should be supported by phasing-out opaque business fee structures.
  - Authorities should pursue a detailed study on the economic impacts of fiscal incentives and exemptions, including to support the implementation of the 2050 Strategy.

### Spending-side reforms and climate integration
- Contain expenditure growth by increasing spending efficiency and gradually phasing out subsidies while implementing measures to strengthen social safety nets.
- Expected benefits of subsidy removal:
  - Promote efficient energy and water usage.
  - Support climate mitigation efforts.
- Staff encourages consideration of:
  - climate-PIMA and green PFM (including a climate tagging system for budgetary purposes).
  - enhancement of PPP frameworks to better align the fiscal framework, support UAE Net Zero Emissions targets, and meet long-term climate transition challenges.

### Debt management and fiscal risk
- Sound debt management strategies should focus on:
  - Further lengthening debt maturities.
  - Reducing refinancing costs.
  - Pre-financing and reducing debt in favorable times.
  - Building a deep and liquid domestic yield curve.
- Strengthen efforts to assess and monitor contingent liabilities and enhance debt, fiscal, and tax risk management practices.

### UAE-wide fiscal framework and sovereign asset-liability management
- Adopt a transparent, rules-based UAE-wide fiscal framework, including by enhancing and coordinating emirate-specific frameworks and anchors, while enforcing fiscal rules.
- Leverage progress under the Fiscal Coordination Council to improve coordination across the public sector and consolidate the UAE’s overall policy stance.
- Given the increasing role of SWFs, enhance sovereign asset-liability management frameworks and closely align them with MTFFs.
- Coordinate the UAE-wide fiscal framework with the UAE 2050 Strategies to fully account for reform investment needs and growth benefits, including to achieve climate goals and increase resilience to global decarbonization vulnerabilities.

### Mainstreaming sustainable finance and financing needs for energy transition
- UAE 2050 Energy Strategy financing need:
  - AED 600 billion (US$163 billion, or 52.1 percent of 2021 nonhydrocarbon GDP).
- Risks without alternative financing:
  - Investments to meet these goals without offsetting fiscal measures or alternative financing would result in higher non-hydrocarbon primary deficits during the transition period and lower net public financial wealth (Annex III Box I).
- Alternative financing strategies to preserve net public financial wealth include relying more on green and sustainable private finance.
- Mainstreaming private sector green finance and supporting policy options, plus appropriate policy design, could mitigate impacts on public finances (2022 SIP Chapter 3).

### Fiscal transparency, governance, and data
- Address data limitations on public sector and fiscal statistics which hinder accurate assessment of fiscal stance, vulnerabilities, and risks.
- Complete plans to publish:
  - Consolidated general government budget plans.
  - Budget outcomes and reconciliation with budgeted amounts.
  - Sectoral spending.
- Publication of the hydrocarbon revenue management strategy would further enhance transparency.
- Enhance data sharing, harmonization of fiscal statistics, and compilation and dissemination of:
  - Central and general government debt.
  - Contingent liabilities (including PPPs).
  - Overall public sector balance sheet.

### Authorities’ views (summary)
- Authorities acknowledged recommendations on maintaining fiscal prudence while continuing fiscal structural reforms and enhancing medium-term fiscal frameworks.
- Noted ongoing reforms:
  - Public workforce and social safety nets.
  - Progress on the planned introduction of CIT from 2023.
  - Work on a climate taxonomy and monitoring PPPs.
- Emphasized benefits from digitalization of government services and enhanced administration and compliance of non-hydrocarbon revenue.
- Agreed on the importance of further enhancing fiscal frameworks and rules, ensuring fiscal coordination at emirate and federal levels, and coordination with the CBUAE on fiscal policies and domestic capital market development.

### Structural reform momentum and green investments
- Diversification goals and expected gains:
  - Medium-term non-hydrocarbon growth could be boosted by up to 4 percentage points from well-coordinated reforms increasing productivity from trade, FDI, and digitalization.
- Policy framework upgrades for energy transition:
  - Prioritize activities with greater economic significance and highest potential to reduce emissions and energy intensity.
  - Develop, standardize, and publish methodology for a measurement, reporting, and verification (MRV) framework tracking mitigation outcomes reflected in NDCs.
- Scaling-up renewables and infrastructure will help reduce CO2 emissions and energy intensity and drive higher growth and diversification.
- Green private finance and fiscal policy:
  - Developing and scaling up private green and sustainable finance would reduce direct fiscal costs, leverage public investment, and foster capital market development.
  - Strengthen governance, legislative and regulatory frameworks and enforcement to enable private green finance markets.
  - Develop unified data, definitions, skills, and awareness on merits of green transition.

### Recommended reforms to support growth during energy transition
- Trade and FDI:
  - Leverage recent CEPAs and reforms to boost FDI to support multilateralism, trade, and economic complexity.
- Labor and product markets:
  - Modernize labor markets, enhance workers’ rights, and continue education system reforms to raise human capital and innovation.
  - Encourage business dynamism, provide targeted assistance to the most vulnerable, reform unemployment benefits and pension schemes, and ensure sufficient social safety nets, including for expatriates.
- Gender-positive policies:
  - Continue closing remaining gender gaps and encourage female labor participation, including in managerial positions and entrepreneurship.
- Digitalization:
  - Implement the Digital Economy Strategy to double the contribution of the digital economy to 19.7 percent of GDP by 2031.
  - Invest in eCommerce, IT infrastructure, capacity development, local production, expansion of electronic payment systems, and public-private collaboration.

### Data issues and statistical capacity
- Priorities to align economic statistics with UAE development level and climate assessments:
  - Establishment of the Higher Committee for Coordination of Statistical Work, open government data laws, progress toward a unified UAE data strategy.
  - Commitments to e-GDDS and movement toward SDDS.
- Specific data actions and timelines:
  - Increase timeliness, periodicity, and full coverage of national accounts, fiscal sector, and external sector statistics.
  - Produce quarterly GDP and monthly CPI on a timely basis.
  - Ongoing TA on external sector statistics should be pursued and the CBUAE should provide adequate staffing to ensure its completion.
  - Revising the CPI basket weights will be finalized by end Q1 2023.
  - Additional efforts needed to collect and disseminate comprehensive climate related dashboards and taxonomies.

### Staff appraisal — macro and financial stability
- Near-term growth drivers:
  - Effective COVID response, timely policy actions, surge in tourism and domestic activity, social and business friendly measures attracting foreign talent and investment.
- Policy stance:
  - Maintain targeted support, avoid inflationary outcomes by maintaining prudent fiscal stance and building buffers amid high oil revenue.
  - Scale back remaining crisis support measures; if adverse shocks occur, scale up public investment to lift productivity alongside targeted support.
- Financial stability:
  - Bank balance sheets remain healthy; Dirham Monetary Framework supports system liquidity.
  - Monitor vulnerabilities from elevated NPLs (including legacy problem assets), tightening financial conditions, and real estate exposures.
  - Continue strengthening macroprudential frameworks; consider capital add-ons for large sectoral concentrations.
  - Continue National AML/CFT Strategy and Action Plan; consider requesting a Financial Sector Assessment Program (FSAP).
- Digital financial innovation:
  - CBDC development and potential issuance require clear policy objectives and design safeguards for monetary and financial stability.
  - Supervise new fintech actors and products with regulatory clarity and collaboration with Supervisory Authorities of financial free zones.
- Debt management and domestic capital market development:
  - Public debt remains sustainable.
  - Continue strengthening debt management practices and monitoring contingent liabilities.
  - Continue issuance of local debt, including at longer maturities, coordinated with CBUAE’s Monetary Bills program to foster a liquid domestic yield curve and local currency capital markets.
  - Complete regulatory progress under the SFWG to promote green financing and mainstream ESG finance.

*Source: IMF staff report content from the provided PDF chapter.*

### 44.      Efforts to improve fiscal transparency and strengthen governance and accountability

### 44.      Efforts to improve fiscal transparency and strengthen governance and accountability

### Fiscal transparency, governance, and public sector balance sheet
- "Efforts to improve fiscal transparency and strengthen governance and accountability should continue."
- "Plans to publish consolidated general government budget plans, reconsolidation with budget outcomes, and sectoral spending, should be ensured on a regular schedule."
- "Significant room exists for enhancing data sharing, completing the harmonization of fiscal statistics, and compiling and disseminating data on central and general government debt, contingent liabilities (including PPPs), and the overall public sector balance sheet."

### Reform sequencing, diversification, and inclusive growth
- "A well-coordinated and sequenced reform agenda can help deliver higher levels of future diversified, sustainable, and inclusive growth."
- "The development of CEPAs is expected to boost the UAE’s productivity and competitiveness over time."
- "This could help increase the returns to investment in digital and green initiatives along with the effective sequencing of reform efforts."
- "These gains could be enhanced with additional measures to improve the business environment, further modernize labor markets, increase human capital and educational outcomes in emerging fields, and leverage gender positive policies."

### Energy policy, decarbonization, and transition balance
- "The UAE’s long-term energy and decarbonization efforts are commendable."
- "The significant progress under the UAE Green Strategy, Net Zero Emissions targets, and other key initiatives, including the USA-UAE Partnership for Accelerating Clean Energy, should be sustained and strengthened to ensure a smooth adjustment to a low carbon global economy."
- "Implementing these policies—including by scaling up ongoing investment in clean energy sources and sustainable infrastructure—is essential to finding a balance to ensuring energy security through fossil fuel production and necessary policies for transition and mitigation."

### Statistical system development and data dissemination
- "While the collection and dissemination of data has improved, additional progress is needed and should remain a top priority."
- "The authorities have advanced efforts to build a modern, transparent, and integrated National Statistical System and remain fully committed to meeting IMF data dissemination standards."
- "Nevertheless, continued improvements in national accounts, fiscal sector, and external sector statistics, including with ongoing IMF Technical Assistance, are needed and should be complemented by additional efforts to refine methodologies and publish data on consumer prices and socio-economic indicators."

*Source: 1areea2023001 - 44.      Efforts to improve fiscal transparency and strengthen governance and accountability*

### 48.      Staff recommend that the next Article IV consultation be held on the standard 12-

### 48.      Staff recommend that the next Article IV consultation be held on the standard 12- month cycle. 

### Recommendation
- Staff recommend that the next Article IV consultation be held on the standard 12- month cycle.

### Recent economic developments and outlook (selected indicators and projections)
- Real GDP (annual percent change): "1.31.1-5.03.96.93.63.94.04.24.3" (2018–2027, Table 1).
- Real hydrocarbon GDP (annual percent change): "4.5-2.6-3.8-0.711.13.03.84.14.44.4" (2018–2027, Table 1).
- Real nonhydrocarbon GDP (annual percent change): "0.12.7-5.45.85.33.83.94.04.14.2" (2018–2027, Table 1).
- CPI inflation (average): "3.1-1.9-2.10.24.93.42.02.02.02.0" (2018–2027, Table 1).
- Crude oil production (in millions of barrels per day): "3.03.12.82.73.13.03.23.33.53.6" (2018–2027, Table 1).
- Average crude oil export price (US$/bbl): "`71.664.243.370.899.685.279.275.873.471.7" (2018–2027, Table 1).

### Fiscal sector highlights and projections
- Total revenue (percent of GDP): "30.531.028.730.435.533.032.031.230.730.4" (2018–2027, Table 3a).
- Expenditures (percent of GDP): "26.728.431.126.426.327.827.727.727.727.7" (2018–2027, Table 3a).
- Net lending(+)/borrowing(-) (percent of GDP): "3.82.6-2.54.09.25.34.33.53.02.7" (2018–2027, Table 3a).
- Adjusted nonhydrocarbon primary balance (in percent of nonhydrocarbon GDP): "-20.2-20.8-22.9-20.5-21.1-22.6-22.1-21.7-21.2    -20.4" (Table 3a).
- Fiscal breakeven oil price (US $ per barrel): "57.453.951.753.154.860.559.159.659.559.2" (2018–2027, Table 3a).
- Gross general government debt (percent of GDP): "21.326.841.135.930.229.828.928.026.925.9" (Table 1).

### Monetary and financial sector developments
- Broad money (M2) (annual percent change): "2.58.04.65.89.26.86.56.86.96.7" (Table 4).
- Credit to private sector (annual percent change): "4.00.6-2.61.57.35.25.65.96.26.3" (Table 1 and Table 4).
- Central bank gross foreign assets (billions of U.S. dollars): "99.3108.1106.5127.8127.8130.9135.7143.3151.3159.7" (Table 1 and Table 2).
- Selected banking soundness indicators (percent): Regulatory Capital to Risk-Weighted Assets: "18.918.117.517.718.117.116.9"; Non-performing Loans to Total Gross Loans: "4.85.05.36.07.67.36.9" (Table 6).

### External sector and balance of payments
- Current account balance (billions of U.S. dollars and percent of GDP): "41.237.321.148.059.239.037.137.138.439.9" and "9.78.96.011.611.77.67.06.76.66.5" (2018–2027, Table 2).
- Exports and re-exports of goods (billions of U.S. dollars): "321314272323398391404421441464" (Table 1).
- Trade balance (billions of U.S. dollars): "85.780.560.379.093.385.187.890.794.298.7" (Table 2).
- Net FDI (percent of GDP, shown in figures): central bank gross foreign assets and net FDI are presented in Figure 4 (projections included in figure panels).

### Governance, business environment and climate-related considerations (summary points)
- Worldwide Governance Indicators (2021) and business environment metrics are reported in Figure 5 (scores and comparative GCC averages).
- Climate vulnerability and emissions trends, sectoral CO2 contributions, energy mix evolution, and breakeven fiscal and external oil prices are presented in Figure 6; Brent crude oil price, 2022: "US $99.62"; Brent crude oil price, 2021: "US $70.83" (Figure 6).
- Per capita electricity consumption comparisons and UAE energy transition notes are presented in Figure 6.

### Fiscal and financing profile (selected debt and rollover maturities)
- Maturing bonds, syndicated and bilateral loans in the non-financial public sector (as of November 2022) are summarized by emirate and sector in Table 5; selected entries include:
  - Abu Dhabi Total (bonds, loans, guarantees): "3,1952,1683,1683,0672,5004,00026,20144,299" (Table 5).
  - Dubai Total (bonds, loans, guarantees): "1,59314,52210,87698031931930,51859,126" (Table 5).
  - Government plus non-bank GREs (>50% gov't ownership) aggregate: "15,04013,24913,04711,04710,1188,29560,588131,383" (Table 5).

### Key projections and monitoring priorities (implied by figures and tables)
- Monitor oil market developments given projected oil prices and production profiles captured in tables and figures (see Average crude oil export price and Crude oil production rows in Table 1).
- Watch fiscal breakeven dynamics and adjusted nonhydrocarbon primary balance given large nonhydrocarbon deficits (see Table 3a).
- Track banking sector indicators (credit growth, NPLs, liquidity ratios) and international reserve adequacy (see Tables 4 and 6, and Figures 3a–3b).
- Continue assessing external balance resilience through central bank gross foreign assets (in months of imports, and percent of GDP) and current account projections (Figure 4; Tables 1–2).

*United Arab Emirates: Selected content and data as presented in the source PDF.*

### Annex I. Implementation of Past Fund Article IV Advice

### Annex I. Implementation of Past Fund Article IV Advice

### Fiscal: Implementation Status of Recommendations
- Adopting a transparent, rules-based UAE-wide fiscal framework for the UAE.  
  - Status: In progress.  
- Conduct a study assessing economic distortions from government fees and exploring alternative revenue models.  
  - Status: In progress. The study on gradual removal of fees is being conducted by the authorities. CIT will be phased-in during 2023—2025.  
- Further progress in collecting and disseminating fiscal data is needed to strengthen governance.  
  - Status: Not implemented. Information on government guarantees, PPPs, SWFs, GREs’ and public sector balance sheets is scarce.

### Monetary / Financial: Implementation Status and Findings
- Continue close monitoring of asset quality, and address legacy NPLs.  
  - Status: In progress. An Advanced Asset Quality Thematic examination was conducted. The CBUAE facilitated the write-offs of some legacy NPLs.  
- Design stringent stress testing scenarios, including for exposure to GREs.  
  - Status: In progress. Bottom-up stress testing was finalized in 2021. Further enhancements are ongoing.  
- Maintain prudential limits on bank lending to real estate.  
  - Status: In progress. The observation period of the new Standards for Bank’s Real Estate Exposure is ongoing.  
- Enact reforms in the regulation and supervision of the insurance sector.  
  - Status: In progress. The CBUAE has developed an action plan to achieve full compliance with the IAIS Insurance Core Principle.  
- Continue to strengthen AML/CFT regime.  
  - Status: In progress. The UAE has delivered several important legislative and institutional reforms. Initiatives should continue.  
- Develop domestic debt markets.  
  - Status: In progress. The implementation of the new DMF in 2021 provided initial support. Further support came from the issuance of domestic federal debt at a medium-term horizon. Issuance of domestic debt at longer maturity is planned.

### Structural: Implementation Status and Reforms
- Bring GREs within the scope of competition laws.  
  - Status: Not implemented.  
- Harness digital solutions and fintech to foster innovation.  
  - Status: In progress with the launch of the Digital Economy Strategy in April 2022.  
- Bring government wages and allowances in line with those in the private sector to facilitate Emiratization.  
  - Status: In progress. A new pension plan for non-Emirati employees working in the Dubai government was launched in July 2022, with the scope of expanding into private sector later.  
- Strengthen the important role of SMEs.  
  - Status: In progress. Recent labor and product market reforms seek to further enhance workers’ rights and strengthen family ownership governance and the business environment (in Abu Dhabi).  
- Building human capital.  
  - Status: In progress. New visa and residency rules introduced in April 2022.  
- Investing in green energy and future infrastructure.  
  - Status: In progress. The authorities updated the voluntary climate commitment under the Paris Agreement to target a 31 percent reduction in greenhouse gas emissions by 2030.

### Statistics: Data Improvements Needed
- Produce and publish external statistics.  
  - Status: In progress. Implementation is delayed due to capacity constraints.  
- Finalize revisions to the CPI basket weights and disseminate CPI series using new weights.  
  - Status: In progress. The authorities are planning to finalize the process by March 2023.  
- Produce and publish quarterly GDP and national accounts data on timely basis.  
  - Status: In progress. An issue of timeliness still needs to be addressed.

---

### Annex II. Spillovers to the UAE from the Global Economic Slowdown and Russia’s War in Ukraine

### Overview: Channels and Observed Effects
- Direct economic impacts from the war in Ukraine have been contained; future effects likely via trade patterns, commodity prices, and financial conditions.
- Trade and supply chains:  
  - UAE imports from Russia and Ukraine averaged less than 1 percent of total imports over 2019-21.  
  - Import exposure can be large for specific products (example: over 80 percent for sunflower oil).  
  - New energy export agreements with France, Germany, and Greece expected to boost UAE exports of natural gas and diesel fuel, diversifying export markets.
- Commodity prices:  
  - Global inflationary impacts from the war have been felt in the UAE, prompting targeted support: doubling of social welfare spending, provision of free bread, subsidized housing, trade restrictions on wheat, and price controls on some basic food items.  
  - Higher oil prices have benefitted the UAE’s fiscal and external positions, but there is considerable uncertainty over the outlook for oil prices and risks of increased oil price volatility (including from the price cap on Russian oil exports).
- Global financial risks:  
  - Aggressive monetary tightening by major central banks has boosted global market volatility and tightened financial conditions.  
  - UAE’s safe haven status has attracted inflows, and higher policy rates have lifted banks’ profitability.  
  - Benefits: inflows facilitate credit and investment; Challenges: higher housing demand has led to rapid rises in real estate prices and record transaction volumes in certain market segments.  
  - Risks: heightened uncertainty could cause capital outflows, lower asset quality, and weaker credit demand.

### Visualization detail preserved from source
- UAE: Oil Exports by Destination, 2021 — country shares listed: Mainland China 19%, India 15%, Japan 29%, Korea 6%, Singapore 8%, Thailand 8%, Pakistan 2%, Italy 6%, Taiwan PoC 2%.

---

### Annex III. Fiscal and Debt Sustainability Assessment

### Key Findings
- UAE financial wealth is assessed to be sufficient to reach fiscal policy objectives; adherence to fiscal rules would ensure prudent use of financial wealth.  
- Overall UAE debt remains sustainable; general government debt in percent of UAE GDP continued a downward trend in 2022 and is expected to decline further with improved oil revenue from higher oil prices, the introduction of a CIT, higher non-hydrocarbon growth, and a sound debt management strategy.  
- Lack of complete coverage of public sector data (gross and net public debt, public sector balance sheet) hinders comprehensive assessment of fiscal sustainability and contingent liabilities.

### Long-Term Fiscal Sustainability Analysis (highlights)
- The UAE amassed significant sovereign financial assets, estimated at around 350 percent of GDP in 2021.  
- Reliance on hydrocarbon proceeds decreased in line with the UAE diversification strategy; fiscal and external breakeven prices declined and are expected to remain well below observed oil prices in 2022.  
- Four nonhydrocarbon primary balance (NHPB) target approaches were analyzed (constant share of non-resource GDP, real annuity, real annuity per capita, Bird-in-hand). Based on net financial wealth as of 2021 and other assumptions, three out of four models suggest the UAE could sustain current levels of the NHPB over the long-term under current assumptions. The constant share of non-resource GDP approach suggests a more ambitious long-term anchor that may not be desirable given development needs.

### Key numeric assumptions and parameters (preserved exactly)
- Oil reserves are estimated as of 2021 at 111 billion barrels.  
- Discount applied to resource revenues 25%  
- Real non-resource GDP growth4.2%  
- Nominal non-resource GDP growth6.3%  
- Population growth 0.7%  
- GDP deflator inflation2.0%  
- US GDP deflator inflation2.0%  
- Real interest rate 4.5%  
- Interest - GDP growth differential0.3%

### Policy Implications and Recommendations
- Large fiscal buffers provide space to respond to shocks; buffers were used for COVID-19 response and targeted support for commodity price shocks.  
- Avoid procyclical fiscal policies; enhance fiscal buffers supported by higher hydrocarbon prices.  
- Strengthen sound fiscal rules, enhanced policy frameworks, tax policies, public investment management, and subsidy reforms. Cross-emirate fiscal coordination and data sharing are essential for efficient use of accumulated financial wealth while pursuing higher long-term productivity, growth, and greening the economy.  
- Medium-term fiscal policy should be coordinated with other objectives (UAE 2050 Strategies) and with the Dirham Monetary Framework to guarantee stability and facilitate growth and energy transition.

### Box 1 — Fiscal Sustainability and Energy Transition (highlights)
- UAE Net Zero by 2050 initiative (announced October 2021); voluntary Paris Agreement commitment enhanced to target a 31 percent reduction in greenhouse gas emissions by 2030 (up from 23.5 percent announced previously).  
- Required investment: AED 600 billion (USD 163 bn, or 52.1 percent of 2021 nonhydrocarbon GDP) in clean energy and renewables, plus modernization of infrastructure and increased energy efficiency.  
- UAE Energy Strategy 2050 targets: increase clean energy share from 25 percent to 50 percent by 2050, reduce carbon footprint of power generation by 70 percent, and reduce final energy demand by 40 percent.  
- Main emissions reduction contributions expected from: electricity generation sector (66.4 percent), industry (16.6 percent), transport (9.7 percent), carbon capture, utilization, and storage (5.3 percent), and waste (2.1 percent).  
- Financing approach: prioritize low- or zero-carbon investments with strong business cases, involve private and public sectors through the UAE Pathway (launched at COP27).  
- Accelerating energy transition will increase pressures on public finances; frontloading investments would raise non-hydrocarbon primary deficits and reduce net public financial wealth if financed from public wealth. Alternative financing strategies (green and sustainable private finance) can help preserve net public financial wealth.  
- Policy levers: tax policies, gradual removal of subsidies, green public investment management, Climate-PIMA (budget tagging), and consideration of climate taxation.  
- Carbon pricing estimate: An estimated Carbon tax (or ETS emissions price) in the order of $75 per ton by 2030 would be consistent with UAE’s intermediate emissions objectives, in the absence of other mitigation measures.  
- Energy subsidy and price reforms can bring electricity and gas prices in line with market prices, reduce fiscal burdens by better targeting subsidies to the most vulnerable, and lower energy demand.

*Source: IMF staff report content provided in the source PDF.*

### Box 1. United Arab Emirates: Fiscal Sustainability and Energy Transition (concluded)

### Box 1. United Arab Emirates: Fiscal Sustainability and Energy Transition (concluded)

### Debt Sustainability Assessment
- General government debt-to-GDP decreased in 2022 to an estimated 30.2 percent of GDP.
- Abu Dhabi and Dubai debt decreased from their peaks of 26.7 and 12.4 percent of UAE GDP in 2020 to an estimated 18.6 and 7.9 percent of UAE GDP in 2022, respectively.
- The share of foreign debt increased between 2020-2022 by 2.4 p.p. to an estimated 55.8 percent of total UAE debt in 2022.
- Decrease in maturity of the overall debt profile in 2022 is explained by Federal government issuance of local currency debt of shorter maturities as the authorities continue to further develop the dirham yield curve.

### Debt Issuance and Federal Debt Position
- The UAE federal government issued its first local currency debt in May 2022, raising AED 1.5 billion as part of the AED 9 billion T-bonds issuance program for 2022.
- Issuance spread across two tranches with final allocation of AED 750 million for the two years tranche, and AED 750 million for the three years tranche.
- Proceeds were placed with the CBUAE as highly liquid assets.
- In July 2022, the UAE issued USD 3 billion in USD denominated bonds with maturities dated in 2032 and 2052.
- The T-bonds provided conventional banks an option to invest liquidity; Islamic banks cannot benefit from this option.
- As of December 2022, the UAE federal government debt stood at 1.9 percent of GDP.

### Dubai Debt Developments and Near-term Financing Needs
- Dubai government debt (including guarantees) decreased to 7.9 percent of UAE GDP in 2022 from its peak of 12.4 percent of UAE GDP in 2020.
- Factors cited: fiscal prudence, increased economic activity due to Expo 2020, positive spillovers from FIFA World Cup in Qatar, and base effect of higher nominal GDP.
- Short to medium term financing needs remain large due to the expected repayment of $20 billion by the Dubai Government.

### Contingent Liabilities, GREs, and Public Debt Composition
- Debt of majority state-owned non-bank GREs is taken into consideration and estimated at 25.3 percent of GDP in 2022.
- Including GREs’ debt exposures brings UAE gross public debt to 55.5 percent of GDP in 2022, down by 19 p.p. of GDP since 2020.
- Breakdown (including GREs) in 2022:
  - Abu Dhabi’s debt: about 34.3 percent of UAE GDP.
  - Dubai’s debt: 17.5 percent of UAE GDP.
- For Dubai, once a contingent liability from a majority state-owned bank is included, its debt ratio increases to 23.4 percent of UAE GDP.
- The UAE’s substantial sovereign foreign assets mitigate risks but official data are unavailable for a more comprehensive analysis.
- Footnotes:
  - Original obligation of the Dubai Financial Support Fund (DFSF) was previously capitalized by the government of Abu Dhabi and the CBUAE; $20 billion in DFSF financing was refinanced in 2014, and in 2018-19.
  - Detailed discussion of GREs’ contingent liabilities risks is presented in the UAE AIV 2021, Annex III Box I.

### Projections and Medium-Term Outlook
- General government debt will continue to decline gradually over the medium term with improved fiscal prospects from higher oil prices and GDP growth.
- Assumptions:
  - Abu Dhabi is assumed to save a large part of projected higher hydrocarbon revenue while accelerating implementation of Abu Dhabi Vision 2030 to boost nonhydrocarbon growth.
  - Dubai is expected to continue borrowing to rollover pre-2020 debt to finance diversification; increased borrowing partly offset by higher GDP growth.
- Overall debt sustainability risks have decreased, but oil price volatility and contingent liabilities from GREs remain main vulnerabilities.
- Priority policy actions to strengthen fiscal risk management and transparency:
  - Collect regular and timely information for fiscal risk analysis with formal reporting requirements for guarantees, GREs and PPPs.
  - Require approval of GREs’ annual borrowing and investment plans by finance authorities.
  - Set predictable dividend payout rules.
  - Establish clear criteria (based on credit risk assessments) for issuance of guarantees.
  - Put in place guidelines for allocation of risks in private-public partnerships (PPPs) and set up PPPs monitoring mechanism.
  - In the medium term, consider incorporating operations of GREs and SWFs in overall fiscal targets to promote greater fiscal discipline and transparency.
- IMF estimate: in 2021 the UAE public sector assets (sum of Abu Dhabi Investment Authority, Investment Corporation of Dubai, Mubadala Investment Company, Abu Dhabi Development Holding Company, Emirates Investment Authority, Sharjah Asset Management, and Fujairah gross assets) stood at about 342 percent of GDP.

### Figure 3 – Baseline Scenario Key Indicators (as presented)
- As of December 06, 2022.
- Nominal gross government debt: 19.7 (2020), 41.1 (2021), 35.9 (2022), 30.2 (2023), 29.8 (2024), 28.9 (2025), 28.0 (2026), 26.9 (2027), 25.9 (Sovereign Spreads).
- EMBIG (bp): 48.
- Government gross financing needs: 0.1 (2020), 7.4 (2021), 1.2 (2022), -4.4 (2023), 1.5 (2024), 2.1 (2025), -0.7 (2026), -0.2 (2027), 0.5 (Sovereign Spreads).
- 5Y CDS (bp): 43.
- Real GDP growth (in percent): 4.0 (2020), -5.0 (2021), 3.9 (2022), 6.9 (2023), 3.6 (2024), 3.9 (2025), 4.0 (2026), 4.2 (2027), 4.3 (Sovereign Spreads).
- Ratings: Moody's Aa2/Aa2; S&Ps AAAA; Fitch AAAA.
- Inflation (GDP deflator, in percent): 0.5 (2020), -11.6 (2021), 15.1 (2022), 13.7 (2023), -2.1 (2024), -0.4 (2025), 0.4 (2026), 0.8 (2027), 1.0 (Sovereign Spreads).
- Nominal GDP growth (in percent): 4.5 (2020), -16.4 (2021), 18.8 (2022), 22.2 (2023), 1.3 (2024), 3.4 (2025), 4.4 (2026), 5.0 (2027), 5.3 (Sovereign Spreads).
- Effective interest rate (in percent): 4.6 (2020), 3.4 (2021), 3.1 (2022), 3.8 (2023), 5.5 (2024), 6.0 (2025), 5.4 (2026), 4.9 (2027), 4.8 (Sovereign Spreads).
- Cumulative change in gross government sector debt: 0.8 (2020), 14.3 (2021), -5.2 (2022), -5.7 (2023), -0.4 (2024), -0.9 (2025), -0.9 (2026), -1.0 (2027), -1.1 (Sovereign Spreads), -10.0 (Cumulative).
- Identified debt-creating flows: -0.5 (2020), 11.4 (2021), -7.0 (2022), -11.8 (2023), -1.5 (2024), -1.1 (2025), -0.7 (2026), -0.5 (2027), -0.4 (Sovereign Spreads), -15.9 (Cumulative).
- Primary deficit: -0.6 (2020), 5.1 (2021), -1.3 (2022), -6.6 (2023), -2.7 (2024), -1.8 (2025), -0.9 (2026), -0.4 (2027), -0.2 (Sovereign Spreads), -12.6 (Cumulative).
- Primary (noninterest) revenue and grants: 29.1 (2020), 24.6 (2021), 26.7 (2022), 31.8 (2023), 28.9 (2024), 27.8 (2025), 27.1 (2026), 26.9 (2027), 26.7 (Sovereign Spreads), 169.1 (Cumulative).
- Primary (noninterest) expenditure: 28.5 (2020), 29.8 (2021), 25.3 (2022), 25.2 (2023), 26.1 (2024), 26.0 (2025), 26.2 (2026), 26.4 (2027), 26.5 (Sovereign Spreads), 156.5 (Cumulative).
- Automatic debt dynamics: 0.0 (2020), 6.2 (2021), -5.7 (2022), -5.2 (2023), 1.2 (2024), 0.7 (2025), 0.2 (2026), -0.1 (2027), -0.2 (Sovereign Spreads), -3.3 (Cumulative).
- Interest rate/growth differential: 0.0 (2020), 6.2 (2021), -5.7 (2022), -5.2 (2023), 1.2 (2024), 0.7 (2025), 0.2 (2026), -0.1 (2027), -0.2 (Sovereign Spreads), -3.3 (Cumulative).
  - Of which: real interest rate: 0.7 (2020), 4.6 (2021), -4.4 (2022), -3.2 (2023), 2.3 (2024), 1.9 (2025), 1.4 (2026), 1.0 (2027), 0.9 (Sovereign Spreads), 4.2 (Cumulative).
  - Of which: real GDP growth: -0.7 (2020), 1.6 (2021), -1.3 (2022), -2.0 (2023), -1.1 (2024), -1.1 (2025), -1.1 (2026), -1.1 (2027), -1.1 (Sovereign Spreads), -7.5 (Cumulative).
- Exchange rate depreciation: 0.0 (all years shown).
- Residual, including asset changes: 1.4 (2020), 2.9 (2021), 1.9 (2022), 6.1 (2023), 1.1 (2024), 0.1 (2025), -0.2 (2026), -0.5 (2027), -0.7 (Sovereign Spreads), 5.9 (Cumulative).
- Assumption note 8/: “Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.”

### Alternative Scenarios and Stress Tests (Figures 4 and 5)
- Baseline, Constant Primary Balance, and Historical scenarios presented with underlying assumptions for:
  - Real GDP growth (Baseline: 6.9 (2022), 3.6 (2023), 3.9 (2024), 4.0 (2025), 4.2 (2026), 4.3 (2027)).
  - Inflation (Baseline: 13.7 (2022), -2.1 (2023), -0.4 (2024), 0.4 (2025), 0.8 (2026), 1.0 (2027)).
  - Primary balance (Baseline: 6.6 (2022), 2.7 (2023), 1.8 (2024), 0.9 (2025), 0.4 (2026), 0.2 (2027)).
  - Effective interest rate (Baseline: 3.8 (2022), 5.5 (2023), 6.0 (2024), 5.4 (2025), 4.9 (2026), 4.8 (2027)).
- Stress test scenarios described (Figure 5):
  - Oil Price Scenario 1/: oil price lower by $10 in 2022-26.
    - Real GDP growth under Oil Price Shock: 6.9 (2022), 0.1 (2023), 0.4 (2024), 0.6 (2025), 0.7 (2026), 0.8 (2027).
    - Primary balance under Oil Price Shock: 6.6 (2022), 0.5 (2023), -0.5 (2024), -1.4 (2025), -1.8 (2026), -2.1 (2027).
  - GRE Contingent Liability Scenario 2/: 20 percent of GRE debt is assumed to be taken over by the government in 2022-26.
    - Primary balance under GRE scenario: 6.6 (2022), 1.6 (2023), 0.1 (2024), -0.9 (2025), -0.9 (2026), -1.0 (2027).
    - Effective interest rate under GRE scenario: 3.8 (2022), 6.0 (2023), 7.0 (2024), 6.9 (2025), 6.3 (2026), 6.2 (2027).
  - Combined Scenario 3/: combines oil price and GRE contingent liability shocks.
    - Real GDP growth: 6.9 (2022), 0.1 (2023), 0.4 (2024), 0.6 (2025), 0.7 (2026), 0.8 (2027).
    - Primary balance under Combined Shock: 6.6 (2022), -0.6 (2023), -2.1 (2024), -3.2 (2025), -3.2 (2026), -3.2 (2027).
- Scenario note: Historical Scenario assumes no new debt issuance if gross financing needs are negative.

### Annex IV: External Sector Assessment — Key Findings
- Overall assessment: External position in 2022 is estimated to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Strengths:
  - Supported by central bank reserves and substantial SWFs’ assets, the external balance sheet remains strong.
  - Current account expected to remain elevated in 2022 with high oil prices and revenues.
- Weaknesses and gaps:
  - Projected current account balance over the medium term is somewhat below the level needed to ensure sufficient saving for future generations.
  - Data gaps hinder a more comprehensive external sector assessment.
- Potential policy responses:
  - Fiscal discipline to manage oil windfalls and consolidation within a transparent medium-term framework could bring the current account balance closer to the level required for intergenerational equity.
  - Structural reforms to diversify the economy could help strengthen the external position.

### External Position and Current Account Details
- Net International Investment Position (NIIP) estimated at $673.9 billion (162.4 percent of GDP) at end-2021.
- NIIP expected to increase to $740.0 billion (145.9 percent of GDP) by end-2022 because of stronger growth of foreign assets.
- 2022 (% GDP) headline items:
  - NIIP: 145.9
  - Gross Assets: 231.2
  - Debt Assets: 25.2
  - Gross Liab.: 85.3
  - Debt Liab.: 85.3
- Current account:
  - Current account expected to increase from 11.6 percent of GDP in 2021 to 11.7 percent of GDP in 2022.
  - Oil production estimated to grow by 15 percent on average in 2022.
  - Average oil export prices increased by about 40 percent in 2022 compared to 2021.
  - Terms of trade expected to improve by 6.6 percent in 2022.
  - Net Services expected to grow by about 25 percent in 2022 with strong tourism activity and higher transportation costs.
- Consumption Allocation Rules (PIH-based) results:
  - Consumption Allocation Rules suggest a CA gap of 4.9 percent of GDP for the constant real annuity and -0.7 percent of GDP for the constant real per capita annuity allocation rules.
  - CA-regression approach estimates a CA gap of -0.7 percent of GDP.
  - Staff assesses a CA gap of -0.7 percent of GDP with a range from -1.9 to 0.5 percent of GDP in 2022.

### Model Estimates for 2022 (In percent of GDP)
- Adjusted CA: 11.6
- CA gap: -0.7
- Policy gap: 6.2
- CA norm (EBA Lite CA approach): 12.2
- Constant annuity in real terms: 4.9 (CA norm)
- Constant annuity in real per capita terms: -0.7 (CA norm)

### Real Exchange Rate and Reserves
- Dirham peg: pegged to the US dollar at a rate of 3.6725 since November 1997.
- As of end-November 2022:
  - REER appreciated by 2.5 percent on average.
  - NEER appreciated by 10.0 percent.
- Staff assessment: REER assessed to be overvalued by about 1.0 percent with a range of -0.8 to 2.9 percent (based on elasticity of 0.66).
- Capital and financial accounts:
  - Net FDI expected to turn positive from USD -1.9 billion in 2021 to 0.6 billion in 2022.
  - Commercial banks net outflows expected to be almost 8 times higher than in 2021 (from USD 5.8 billion in 2021 to USD 45.1 billion in 2022).
  - UAE has an open capital account; large central bank reserves and SWFs’ assets limit risks.
  - Data gaps on GREs and SWFs’ activities complicate financial account analysis.
- FX intervention and reserves:
  - Central bank buys and sells unlimited dollars and dirhams at the official exchange rate to maintain the peg.
  - Gross FX reserves expected to remain around USD 130 billion (25.2 percent of GDP, 7.2 months of imports and 74 percent of the Fund’s reserve adequacy metric) at end-2022.
  - Reserves expected to slightly increase over the medium term as non-oil exports pick up.
  - Assessment: Reserves adequate for precautionary purposes; fiscal consolidation warranted over the medium term to strengthen external position and increase savings for future generations.
- Oil price assumption: average oil export price assumed to be USD 99.6 a barrel in 2022 (USD 70.8 a barrel in 2021).

*Source: IMF staff estimates and calculations as presented in the original content.*

### Annex V. Risk Assessment Matrix

### Annex V. Risk Assessment Matrix

### Global Risks — Main entries, likelihood, impacts, and policy responses
- Intensifying spillovers from Russia’s war in Ukraine.
  - Likelihood/Time Horizon: High/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: Low. Direct spillovers on the UAE economy have been limited as direct trade and financial links to Russia and Ukraine are negligible. The initial direct impact mostly via higher oil prices and capital and businesses inflows had a positive impact on growth but added to inflationary pressures.
  - Policy Response:
    - Temporarily loosen the fiscal stance to accommodate additional targeted spending to shield the most vulnerable households from increased costs of living, while avoiding broad-based price support schemes.
    - Prepare and communicate future consolidation measures to rebuilt fiscal buffers.
    - Continue encouraging access to cheaper suppliers and new markets to contain price increases.
    - Advance structural reforms to enhance competitiveness, facilitate import substitution, and to diversify the economy.
    - Monitor and mitigate the impact of tighter global financial conditions on the public balance sheets and the financial sector.

- Commodity price shocks.
  - Likelihood/Time Horizon: High/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: High. A higher oil prices would further improve UAE fiscal and external positions and lead to higher liquidity within the financial system. Higher hydrocarbon GDP growth will positively impact nonhydrocarbon GDP. While lower oil prices would lead to negative spillovers in the non-hydrocarbon sector. Higher commodity prices would add to inflationary pressures.
  - Policy Response:
    - Continue adhering to fiscal rules and replenish fiscal buffers.
    - Advance fiscal structural reforms to improve fiscal sustainability and reduce reliance on hydrocarbon revenue.
    - Revisit targeted fiscal support to the most vulnerable as commodity prices’ cycle reverse.
    - The CBUAE should continue monetary tightening in line with Fed and close monitoring of domestic liquidity conditions according to the new Dirham Monetary Framework.
    - Continue structural reforms to boost nonhydrocarbon growth and diversification, encourage policies for a smooth transition to a greener economy, deeper capital markets, and adoption of productivity enhancing technology, fintech, and digitalization.

- De-anchoring of inflation expectations and stagflation.
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: Medium. Tighter global financial market conditions could affect the UAE’s ability (both government and GREs) to refinance their outstanding debt obligations, creating financial disruptions. A global growth slowdown could adversely impact UAE trade in goods and services and have a knock-on effect on commodity prices.
  - Policy Response:
    - Carefully calibrate fiscal policy and limit new debt accumulation.
    - Strengthen management of fiscal risks and oversight of GREs.
    - Continue close monitoring of financial system risks.

- Abrupt global slowdown or recession.
  - Likelihood/Time Horizon: Medium-to-High/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: Medium/Low. Abrupt growth slowdown in Europe and China would adversely affect the UAE through supply chain disruptions, trade, including tourist arrivals, commodity-price, and financial channels.
  - Policy Response:
    - Temporarily loosen the fiscal stance to accommodate additional targeted spending to shield the most vulnerable.
    - Continue ensuring stability of the financial system.
    - Accelerate structural reforms to boost nonhydrocarbon growth and diversification.
    - Improve social safety net programs to better target most vulnerable populations.

- Natural disasters related to climate change.
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: Medium/Low. Natural disasters related to extreme weather events could damage infrastructure, disrupt trade, and reduce demand and employment, adding to fiscal burden through additional capital expenditure and transfers.
  - Policy Response:
    - Scale up investments for adaptation projects, climate resilient infrastructure, and in renewables.
    - Fully incorporate climate risks in prudential policies and financial sector assessments.
    - Improve social safety net programs to better target the most vulnerable populations.
    - Continue to save windfall revenue and pursue fiscal structural reforms to improve fiscal sustainability and reduce reliance on hydrocarbon revenue.

- Cyberthreats.
  - Likelihood/Time Horizon: Medium/Short-to-Medium-Term
  - Expected Impact on the Economy if Risk is Realized: Medium/Low. As the UAE become more digitalized, cyberattacks could significantly impair the functioning of the financial system, with a broader fallout on the economy.
  - Policy Response:
    - Continue progress towards integrating the analysis of cybersecurity risks into the CBUAE and freezone frameworks.
    - Continue the enhancement of cyber risk mitigation through appropriate supervision of the financial system.

### Inflation Dynamics in the UAE — Findings and analytical results
- Overview findings from numbered points in the Annex:
  - 1. Inflation has remained relatively stable over the past decade despite challenges posed by fluctuations in international commodity prices. Since 2009, inflation has been less than or around 3 percent a year except in 2015 because of the reforms of fossil fuel subsidies. Given that the UAE is mostly relying on fiscal policies and changes in exchange rates do not affect the volume of overall exports, the monetary policy frameworks targeting a stable exchange rate seem to have contributed to stabilizing inflation.
  - 2. The recent increase in inflation seems to be mainly driven by food and transport. Food inflation increased from -2.4 percent (y/y) in March 2021 to 3.7 percent (y/y) in December 2021. Transport basket rose as prices of cars saw a sharp increase internationally during 2022 and transport services, mainly international transport by air and travel by sea, also picked up.
  - 3. Given the high import dependency of the UAE, a Global VAR (GVAR) model is used to investigate spillover of global inflation to the UAE. The GVAR model:
    - Consists of 38 countries covering about 90 percent of the world GDP.
    - Includes five domestic variables for each country: real GDP, inflation, growth of money supply, nominal effective exchange rate (NEER), interest rates, which are endogenous to each economy.
    - Except for the US, a weighted average of trade partner's domestic variables is entered as foreign variables, treated as weakly exogenous following Dees et al. (2007).
    - For the US model, only foreign CPI and foreign growth of money supply are included as foreign variables.
    - The oil price and the price of agricultural materials are included in the GVAR as global variables endogenous to US foreign variables, but weakly exogenous to all other countries.
  - 4. GVAR estimations indicate that domestic inflation in the UAE is mainly driven by imported inflation from its main trading partners. Results show that an initial 1 percentage point increase in inflation abroad leads to a 0.35 percentage point increase in inflation based on historical data. Given recent global developments, UAE CPI is expected to be between 0.8 and 1.3 percentage points higher in 2022 in addition to other factors.
  - 5. A higher pass-through of international oil prices into domestic inflation is expected following the reforms of fossil fuel subsidies in 2015. Positive correlations between international oil prices and retail sales prices of gasoline and diesel have been observed since the reforms. Fuel subsidies for gasoline and diesel have been removed and prices are set each month based on global prices. Diesel prices were frozen by the Fuel Price Committee after the onset of the coronavirus pandemic in 2020; controls were removed in March 2021. In August 2022, the levels are close to the ones observed in G20 countries, and much higher than in other GCC or MENA countries.

- Key quantitative points and model output highlights:
  - GVAR coverage: 38 countries covering about 90 percent of the world GDP.
  - GVAR domestic variables: real GDP; inflation; growth of money supply; nominal effective exchange rate (NEER); interest rates.
  - Estimated pass-through: 1 percentage point increase in inflation abroad -> 0.35 percentage point increase in UAE inflation (historical estimate).
  - UAE CPI expected increase in 2022 attributable to foreign inflation: between 0.8 and 1.3 percentage points.

*Source: Annex V. Risk Assessment Matrix and Annex VI. Inflation Dynamics in the UAE, IMF staff report excerpts.*

### 2008. In July 2018, the UAE launched a National

### UAE: Table of Common Indicators Required for Surveillance (As of December 12, 2022)

### Data dissemination history and metadata
- In July 2018, the UAE launched a National Summary Data Page (NSDP), becoming the first Gulf Cooperation Council (GCC) country to implement the recommendations of the enhanced General Data Dissemination System (e-GDDS).
- The UAE continues to work toward subscribing to the Special Data Dissemination Standards (SDDS).
- No Data ROSC is available.

### Key data availability and frequency (latest observation, date received, frequency of data, frequency of reporting, frequency of publication)
- Exchange Rates
  - Date of latest observation: Real time
  - Date received: Real time
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Frequency of publication: D

- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of latest observation: 09/2022
  - Date received: 11/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Reserve/Base Money
  - Date of latest observation: 09/2022
  - Date received: 11/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Broad Money
  - Date of latest observation: 09/2022
  - Date received: 11/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Central Bank Balance Sheet
  - Date of latest observation: 09/2022
  - Date received: 11/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Consolidated Balance Sheet of the Banking System
  - Date of latest observation: 09/2022
  - Date received: 11/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Interest Rates
  - Date of latest observation: Real time
  - Date received: Real time
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Frequency of publication: D

- Consumer Price Index
  - Date of latest observation: 12/2021
  - Date received: 05/2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M

- Revenue, Expenditure, Balance and Composition of Financing – Central and General Government
  - Date of latest observation: 06/2022
  - Date received: 09/2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of publication: Q

- Stocks of Central Government and Central Government-Guaranteed Debt
  - Date of latest observation: ...
  - Date received: ...
  - Frequency of Data: NA
  - Frequency of Reporting: NA
  - Frequency of publication: NA

- External Current Account Balance
  - Date of latest observation: 2021
  - Date received: 11/2022
  - Frequency of Data: A
  - Frequency of Reporting: A
  - Frequency of publication: A

- Exports and Imports of Goods and Services
  - Date of latest observation: 2021
  - Date received: 11/2022
  - Frequency of Data: A
  - Frequency of Reporting: A
  - Frequency of publication: A

- GDP/GNP
  - Date of latest observation: 2021
  - Date received: 09/2022
  - Frequency of Data: A
  - Frequency of Reporting: A
  - Frequency of publication: A

- Gross External Debt
  - Date of latest observation: ...
  - Date received: ...
  - Frequency of Data: NA
  - Frequency of Reporting: NA
  - Frequency of publication: NA

- International Investment Position
  - Date of latest observation: ...
  - Date received: ...
  - Frequency of Data: NA
  - Frequency of Reporting: NA
  - Frequency of publication: NA

### Technical and definitional notes
- Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I): Not Available (NA).
- Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by means as well as the national values of derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
- Interest rates: Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes and bonds.
- Revenue, expenditure, balance and composition of financing: Foreign, domestic bank, and domestic nonbank financing.
- Stocks of central government and central government-guaranteed debt: Including currency and maturity composition.
- International Investment Position: Includes external gross financial asset and liability positions vis-à-vis nonresidents.

*Source: UAE: Table of Common Indicators Required for Surveillance (As of December 12, 2022).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1areea2023001.pdf_