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### Spillovers from a Potential China Growth Slowdown
- Key findings:
  - Spillovers from domestic shocks in the Group of Twenty emerging markets, particularly China, have increased and become comparable in size to those from shocks in advanced economies.
  - A slowdown in China’s growth would significantly reduce global oil prices and UAE hydrocarbon GDP.
  - Direct impact on UAE non-hydrocarbon GDP is limited, but indirect second-round effects through other GCC countries and trading partners could reduce UAE non-hydrocarbon exports over the medium term.
  - UAE trade diversification has improved and remained above other GCC countries, mitigating negative spillovers.
- Quantitative exposure and estimates:
  - China imports more than 50 percent of its oil consumption.
  - China represented more than 15 percent of UAE crude oil exports in 2022.
  - The export value of oil to China has tripled in the last 3 years; China is the UAE’s second largest oil export destination after Japan.
  - Share of oil-related products in UAE exports of goods to China rose from 50 percent in 2019 to 80 percent in 2022.
  - IMF estimations (IMF 2023 Gulf Coordination Council Report): a one percentage point negative shock in China’s growth would:
    - decrease non-hydrocarbon output in Gulf Cooperation Council (GCC) countries by 0.2 percent in the first year;
    - decrease non-hydrocarbon output in GCC countries by 0.6 percent in the medium term.
- Policy implication:
  - Prioritize further trade diversification and trade liberalization (including CEPAs and UAE accession to BRICS) and policies to support non-hydrocarbon growth to offset hydrocarbon-related losses.

### Macroeconomic outlook and authorities’ views
- Authorities vs staff:
  - Authorities expect stronger near-term GDP growth and modestly higher inflation relative to staff.
  - Inflation anticipated to stay slightly elevated at 2.3 percent in the next year.
  - Authorities expect continued expansion in tourism, construction, manufacturing, and financial services and stronger hydrocarbon GDP near- and medium-term despite OPEC+ voluntary cuts.
  - Authorities reiterated strong commitment to the exchange rate peg.
- Recent developments and near-term outlook (time series presented as annual percent changes and levels):
  - Real GDP (annual percent change): -5.0; 4.4; 7.5; 3.6; 3.7; 5.0; 4.8; 4.6; 4.3; 4.3
  - Real hydrocarbon GDP (annual percent change): -3.8; -1.1; 8.5; -3.1; 0.2; 7.3; 6.3; 5.2; 4.0; 3.5
  - Real nonhydrocarbon GDP (annual percent change): -5.4; 6.5; 7.1; 6.2; 4.9; 4.2; 4.3; 4.4; 4.4; 4.5
  - CPI inflation (average, percent): -2.1; -0.1; 4.8; 1.6; 2.2; 2.0; 2.0; 2.0; 2.0; 2.0
  - Crude oil production (millions of barrels per day): 2.8; 2.6; 3.1; 3.0; 2.9; 3.2; 3.5; 3.8; 4.0; 4.1

### Financial sector, macroprudential and monetary policy
- Systemic risks and supervision:
  - Systemic risks assessed as low but vulnerabilities to external shocks warrant continued vigilance.
  - Countercyclical capital buffer should be considered after careful assessment of impacts on bank balance sheets and credit intermediation.
  - Supervisory priorities include forward-looking assessments of banks’ risks, management of legacy NPLs (including sales), and monitoring climate-related financial stability risks (insurance sector focus).
- Domestic Market Framework (DMF) and liquidity management:
  - DMF largely implemented; full flexibility should be used to support liquidity management and domestic capital market development.
  - M-bills market nascent; recommended to finalize DMF by rolling out Term Lending Facility and Matched Transactions of Securities and to rely more on M-Bills as the market develops.
  - Avoid further increases beyond the historical reserve requirement level of 14 percent for demand deposits without careful consideration.
- Monetary/fx policy:
  - Exchange rate peg remains an appropriate and credible anchor.
  - CBUAE foreign reserves have increased and remain adequate according to the IMF’s ARA metric.
  - Over the longer term, consider exploring more flexibility in setting the policy rate to support non-hydrocarbon sector development.

### Financial soundness and real estate sector risks
- Key financial soundness indicators (selected series):
  - Regulatory Capital to Risk-Weighted Assets (percent): 18.1; 17.5; 17.7; 18.1; 17.1; 17.4; 17.9
  - Regulatory Tier 1 Capital to Risk-Weighted Assets (percent): 16.6; 16.2; 16.5; 17.0; 16.0; 16.2; 16.6
  - Non-performing Loans to Total Gross Loans (percent): 5.0; 5.3; 6.0; 7.6; 7.3; 6.6; 5.3
  - Provisions to Nonperforming Loans (percent): 72.2; 70.3; 62.5; 58.7; 61.4; 60.9; 60.4
  - Return on Assets (percent): 1.5; 1.5; 1.6; 0.7; 1.2; 1.5; 2.0
  - Liquid Assets to Total Assets (percent): 15.1; 14.5; 15.0; 15.3; 16.4; 16.1; 18.5
- Real estate exposure and regulatory recommendations:
  - Banks’ comprehensive exposure to real estate sector: 20.5 percent of total credit risk-weighted assets (CRWA) at end-2023.
  - Recommendations include concluding the Standards for Bank Real Estate Exposure, consider reducing the 30 percent exposure threshold, consider capital or risk-weight add-ons for large exposures, avoid procyclical incentives, phase out pandemic-era downpayment relaxations for first-time home buyers, assess GREs and sovereign exposures, enhance data transparency, and use targeted support/supply-side policies to protect vulnerable households.

### Digitalization, payments, virtual assets, and AML/CFT
- CBUAE Financial Infrastructure Transformation (FIT) Program highlights:
  - Soft launch of Instant Payment Platform (Aani) in October 2023.
  - Active exploration of retail and wholesale CBDC; initiatives include Domestic Card Scheme, OpenFinance, SupTech; integration into GCC RTGS (AFAQ).
  - Guidance: cautious rollout, careful assessment of risks to monetary and financial stability, clearly defined and prioritized policy objectives.
- Virtual assets:
  - Policies to attract virtual asset service providers should address associated risks; strengthen regulatory capacity and ensure coordinated policy across national and international entities.
- AML/CFT:
  - Major efforts under National AML/CFT Strategy in line with FATF standards; rectified TFS framework deficiencies; UAE removed from FATF “grey list” in February 2024.
  - Continued efforts recommended, particularly for virtual assets and real estate sector ML/TF risks.
- Sustainable finance:
  - Sustainable Finance Working Group issued guiding principles and developed a UAE taxonomy; enhanced sustainability reporting at end-2023. Continue advancing regulatory framework and stakeholder coordination.

### Fiscal sustainability, revenues, and policy recommendations
- Recent fiscal picture and medium-term guidance:
  - Total revenue (percent of GDP): 28.7; 30.4; 33.1; 28.2; 28.3; 28.1; 27.8; 27.5; 27.4; 27.4
  - Taxes (percent of GDP): 11.8; 13.0; 17.6; 17.6; 16.5; 16.5; 16.6; 16.7; 16.7; 16.8
  - Expenditures (percent of GDP): 31.1; 26.4; 23.1; 23.3; 23.5; 23.5; 23.5; 23.3; 23.4; 23.4
  - Net lending(+)/borrowing(-) (percent of GDP): -2.5; 4.0; 10.0; 5.0; 4.8; 4.7; 4.4; 4.2; 4.0; 4.0
  - Fiscal breakeven oil price (US$ per barrel): 51.7; 53.0; 46.6; 52.8; 54.1; 51.3; 50.7; 49.2; 48.2; 46.9
  - Hydrocarbon revenue (billions AED): 163.7; 243.6; 347.7; 261.0; 275.1; 286.8; 302.1; 311.4; 317.2; 324.9
  - Nonhydrocarbon revenue (billions AED): 204.2; 220.2; 263.6; 272.1; 287.8; 302.1; 311.5; 329.3; 354.8; 384.5
- Staff recommendations:
  - Gradual growth-friendly fiscal consolidation of the non-hydrocarbon primary fiscal deficit of around 3 percent by 2030, supported by fiscal rules and the medium-term fiscal framework (MTFF).
  - Measures: tax policy reforms, gradual removal of subsidies alongside measures to enhance social safety nets, and increasing spending efficiency.
  - Improve public expenditure efficiency, consolidate on- and off-balance sheet initiatives, prioritize projects with higher returns, adopt performance-based budgeting, and modernize PFM (including AI adoption).

### Corporate Income Tax (CIT) and tax administration
- Key CIT features and implementation:
  - General federal CIT of 9 percent implemented on June 1, 2023.
  - CIT will create a new non-hydrocarbon revenue stream from 2025.
  - Public consultation on Pillar II launched March 2024; UAE’s implementation of Pillar II rules to proceed in line with global trends.
  - CIT implementation should be finalized promptly, including revenue sharing between federal and local governments; limit discretionary incentives.
- CIT specifics and free zones:
  - CIT Tax Rate: 9 percent levied on companies with profits above AED 375,000.
  - Exemptions: oil and gas sector, government entities and government-controlled entities (unless conducting business under a License).
  - Free zones and QFZPs:
    - 46 FZs in the UAE; QFZP conditions (must meet all): FZ Person status; maintain adequate substance in the UAE; derive qualifying income; not elected to standard regime; comply with transfer pricing rules; meet other MoF conditions.
    - FZ businesses should have reviewed footprint/profile for compliance by January 1, 2024.
    - Non-qualifying QFZP income taxed at 9 percent.
  - SME and restructuring: relief measures for start-ups and SMEs; loss offset allowed up to 75 percent of taxable income per period with indefinite carryforward.
- Administrative and capacity issues:
  - TADAT assessment (2023) found sound/good practice in many areas but identified capacity gaps and legal impediments (access to bank information, penalty adjustment, compensation payments, transparency).
  - Implementation challenges include complexity, compliance burden, accounting needs, and shortage of skilled tax professionals.
  - Outstanding elements include revenue sharing mechanism between federal and local governments and rate on multinationals pending discussion.

### Public Sector Balance Sheet (Box 3)
- PSBS estimates (end-2023):
  - General government net worth: 187.8 percent of UAE GDP.
  - General government net financial worth: 15.9 percent of GDP.
  - Public sector net assets: close to 1,100 percent of GDP.
  - Public sector net financial assets: 453.3 percent of GDP.
  - Net worth increased from close to 1,070 percent of GDP in 2021 to about 1,100 percent of GDP in 2023.
- Asset composition (share of UAE total assets, 2023):
  - SWFs: 32.4 percent.
  - Fixed assets: 15.6 percent.
  - Hydrocarbon assets: 43 percent.
- Liabilities:
  - Total liabilities: 103.6 percent of GDP, almost equally distributed among general government, GREs, and CBUAE debt.
- Governance and compilation recommendations:
  - Consolidate fiscal stance, enhance data and institutionalize information sharing for GFSM 2014 compliance; review sectoral classification; map IPSAS statement of cash flows; compile transactions in financial assets/liabilities; compile and disseminate central and general government debt statistics, contingent liabilities (including PPPs), and overall PSBS.

### External sector assessment and NIIP
- Overall assessment:
  - 2023 current account estimated broadly in line with medium-term fundamentals and desirable policies; external balance sheet remains strong due to central bank reserves and SWFs’ assets.
  - Projected current account to decline from 2024 as oil prices stabilize and imports pick up but remain sufficient for future savings.
- NIIP and reserves:
  - NIIP estimated at $871.9 billion (169.6 percent of GDP) at end-2023; expected to increase to $942.2 billion (173.6 percent of GDP) by end-2024.
  - Gross FX reserves: $186.3 billion (36.2 percent of GDP, 8.2 months of imports and 100 percent of the Fund’s reserve adequacy metric) at end-2023.
- Current account history and projections:
  - 2022 current account: 13.2 percent of GDP.
  - 2023 current account: 10.7 percent of GDP.
  - 2024 projected current account: 8.8 percent of GDP.
- Crude oil export price assumed: $82.3 a barrel in 2023 ($99.0 a barrel in 2022).
- Crude oil exports by destination, 2022 (percent of total): China 25%; India 13%; Japan 28%; Singapore 7%; Other Asia Pacific 25%; Rest of World 2%

### Sovereign risk and debt sustainability
- Medium-term assessment:
  - Debt fanchart index (DFI): 1.3 — Risk signal: Moderate.
  - Average baseline Gross Financing Needs (GFN): 2.4 (percent of GDP) — GFN financeability index (GFI): 5.3 — Risk signal: Low.
  - Final assessment: Medium-term risks are assessed as low, consistent with the mechanical "low" signal.
  - Probabilities (2024–2029):
    - Prob. of missed crisis, 2024-2029, if stress not predicted: 9.1 pct.
    - Prob. of false alarms, 2024-2029, if stress predicted: 54.5 pct.
  - Commentary: Gross financing needs under stress small; large sovereign net financial assets mitigate risks.

### Risk Assessment Matrix (selected risks and policy responses)
- Intensification of regional conflicts:
  - Likelihood: High; Expected impact: Low/Medium.
  - Policy response: Temporarily loosen fiscal stance for targeted spending; monitor financial system risks and tighten macroprudential policies as needed; advance structural reforms.
- Commodity price volatility:
  - Likelihood: High; Expected impact: High.
  - Policy response: Adhere to fiscal rules; enhance fiscal buffers; pursue fiscal structural reforms; strengthen social safety nets; use DMF and monitor liquidity.
- Abrupt global slowdown:
  - Likelihood: Medium; Expected impact: Medium/High.
  - Policy response: Temporarily loosen fiscal stance for vulnerable groups; ensure financial stability; accelerate diversification reforms; improve social safety nets.
- Disorderly energy transition, cyberthreats, monetary policy miscalibration, natural disasters all flagged with corresponding medium-likelihood/impact assessments and targeted policy responses in Annex IV.

### Data issues, gaps, and capacity development priorities
- Data adequacy:
  - UAE participates in e-GDDS; data provision has some gaps but broadly adequate for surveillance.
  - Notable gaps: external sector statistics, accounts of GREs and SWFs, central government debt, external debt, and IIP details.
- Recent changes and priorities:
  - Timeliness of national accounts improved; CPI basket revision disseminated.
  - CBUAE hired 15 new staff for BoP/IIP work; MoF requested and received IMF TA (January–February 2024) on GFS and PSBS compilation.
  - Authorities committed to e-GDDS and working toward SDDS subscription.
- Staff recommended actions:
  - Increase timeliness, periodicity, and coverage of national accounts, fiscal, and external statistics; disseminate central government gross debt, IIP, external debt, and DSI template to meet SDDS.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1areea2024001-print-pdf.pdf*

### 2.   Spillovers from a Potential China Growth Slowdown __________________________________________ 10

### 2. Spillovers from a Potential China Growth Slowdown

### Key findings
- Spillovers from domestic shocks in the Group of Twenty emerging markets, particularly China, have increased and become comparable in size to those from shocks in advanced economies (April 2024 WEO Chapter 4).
- A slowdown in China’s growth would significantly reduce global oil prices and UAE hydrocarbon GDP.
- Lower growth in China would have a smaller direct impact on UAE’s non-hydrocarbon GDP growth; indirect second-round effects through other GCC countries and key trading partners could nonetheless reduce UAE non-hydrocarbon exports over the medium term.
- UAE trade diversification has improved in recent decades and remained above other GCC countries, helping mitigate negative spillovers.

### Quantitative spillover estimates and exposure
- China imports more than 50 percent of its oil consumption.
- China represented more than 15 percent of UAE crude oil exports in 2022.
- The export value of oil to China has tripled in the last 3 years, making China the UAE’s second largest oil export destination after Japan.
- The share of oil-related products in UAE exports of goods to China increased from 50 percent in 2019 to 80 percent in 2022.
- Based on IMF estimations (IMF 2023 Gulf Coordination Council Report), a one percentage point negative shock in China’s growth would:
  - decrease non-hydrocarbon output in Gulf Cooperation Council (GCC) countries by 0.2 percent in the first year;
  - decrease non-hydrocarbon output in GCC countries by 0.6 percent in the medium term.

### Trade and oil channel implications
- The primary transmission to the UAE is via lower global oil prices and weaker hydrocarbon GDP given China’s role as a major oil consumer and importer.
- Direct impacts on UAE non-hydrocarbon GDP from a China slowdown are limited; however, second-round effects through weaker demand in other GCC partners and key trading partners could reduce non-hydrocarbon goods and services exports over the medium term.
- Continued improvements in export diversification and trade liberalization can lessen reliance on a single trading partner.

### Mitigation and policy recommendations
- Further trade diversification and trade liberalization, including through Comprehensive Economic Partnership Agreements (CEPAs) and the UAE’s accession to BRICS, should help:
  - diversify capital and trade flows;
  - broaden supply chains by accessing new markets;
  - mitigate negative shocks from a specific trading partner.
- Policies to support non-hydrocarbon growth should be prioritized in the event of a significant growth slowdown to offset hydrocarbon-related losses.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1areea2024001-print-pdf.pdf*

### 13. The authorities broadly shared staff’s assessment of the macroeconomic outlook but

### 13. The authorities broadly shared staff’s assessment of the macroeconomic outlook but

### Macroeconomic outlook and authorities’ views
- Authorities expect stronger near-term GDP growth and modestly higher inflation relative to staff, with:
  - inflation anticipated to stay slightly elevated at 2.3 percent in the next year.
- Authorities see continued expansion in tourism, construction, manufacturing, and financial services, and expect a stronger boost from these sectors to non-hydrocarbon GDP growth in 2024 and in the medium term.
- Despite OPEC+ voluntary cuts, authorities expect stronger hydrocarbon GDP in the near and medium terms, supported by strong global demand and rising domestic gas production.
- Authorities acknowledged the importance of continuing to build climate change resilience while advancing the economic diversification agenda.
- Authorities reiterated strong commitment to the exchange rate peg.

### Policies to ensure sustainable growth and safeguard financial and monetary stability
- Broad recommended policy mix:
  - ensure the adequacy of macro-prudential tools, address surplus liquidity, and develop effective supervision of digital innovation and FinTech activities;
  - sustain countercyclical fiscal policy and enhance emirate-specific fiscal frameworks, anchored in a transparent, rules-based harmonized medium-term fiscal framework;
  - further prioritize and sequence the structural reform agenda;
  - enhance data transparency and dissemination.

### Financial sector and monetary policies — systemic risks and supervisory priorities
- Systemic risks assessed as low, but vulnerabilities to external shocks warrant continued policy vigilance.
- Countercyclical capital buffer:
  - should be considered after careful assessment of potential impacts on bank balance sheets and credit intermediation.
- Supervisory priorities:
  - continue forward-looking assessments of banks’ financial stability risks and asset quality;
  - promote effective management of legacy NPLs, including through sales of those assets;
  - enhance monitoring of financial stability risks from climate change, particularly for the insurance sector.

### Real estate sector risks and regulatory recommendations
- Banks’ comprehensive exposure to the real estate sector remained elevated at 20.5 percent of total credit risk-weighted assets (CRWA) at end-2023.
- Regulatory recommendations:
  - conclude the observation period of the Standards for Bank Real Estate Exposure and reinforce the regulatory framework;
  - consider reducing the 30 percent exposure threshold in the context of a reassessment of risks;
  - consider implementing capital or risk-weight add-ons for large real estate exposures;
  - avoid procyclical policies such as incentives for individual foreign real estate investors and institutional investors;
  - phase out the relaxation of downpayment requirements for first-time home buyers introduced during the pandemic;
  - assess potential risks to some developers’ balance sheets and the aggregate exposure of GREs and sovereign entities to the real estate sector;
  - enhance data transparency and include a risk analysis in communications on real estate sector developments;
  - use targeted support measures and supply-side policies to limit strains on vulnerable households and support affordability.

### Financial Stability Council, regulatory framework, and resolution planning
- Staff welcome plans for a coordinated framework to monitor and assess financial stability risks; encourage finalization and implementation of the Financial Stability Council.
- Recommendations:
  - enhance scope of systemic risk analysis through greater data collection and dissemination of nonbanking financial institution activity;
  - improve coordination among regulatory bodies;
  - continue work towards a resolution framework despite the Recovery Planning Regulation being effective;
  - enhance transparency and communication on the regulatory framework, including publication of the CBUAE Rulebook.

### Digitalization, payments, and virtual assets
- CBUAE Financial Infrastructure Transformation (FIT) Program highlights:
  - soft launch of an Instant Payment Platform (Aani) in October 2023;
  - active exploration of retail and wholesale Central Bank Digital Currency (CBDC);
  - initiatives including a Domestic Card Scheme, OpenFinance, and SupTech;
  - integration of the UAE into the GCC Real-Time Gross Settlement system (AFAQ).
- Guidance:
  - follow a cautious approach in rollout, with careful assessment of risks to monetary and financial stability;
  - keep policy objectives well-defined and prioritized.
- Virtual assets:
  - policies to attract virtual asset service providers should effectively address associated risks;
  - strengthen regulatory capacity and ensure a comprehensive, consistent, and coordinated policy response across national and international regulatory entities to safeguard macroeconomic and financial stability.

### AML/CFT progress and sustainable finance
- AML/CFT improvements:
  - major efforts advanced under the National AML/CFT Strategy in line with FATF standards;
  - rectified deficiencies relating to the framework for targeted financial sanctions (TFS);
  - UAE removed from the FATF “grey list” in February 2024.
- Continued efforts recommended, particularly regarding virtual assets and the real estate sector, to mitigate ML/TF risks.
- Sustainable finance:
  - Sustainable Finance Working Group issued guiding principles for management of climate-related financial risks, developed a UAE taxonomy, and enhanced sustainability reporting at end-2023;
  - continue advancing regulatory framework, taxonomy, and stakeholder coordination to support green and sustainable finance.

### Domestic Market Framework (DMF), liquidity management, and domestic capital markets
- DMF implementation:
  - DMF largely implemented; full flexibility should be used to support effective liquidity management and domestic capital market development.
- Liquidity management recommendations:
  - M-bills market is nascent and should develop over time to support CBUAE efforts to reduce surplus liquidity in line with targets;
  - finalize DMF by rolling out remaining liquidity management facilities (namely, the Term Lending Facility and the Matched Transactions of Securities);
  - increase transparency and communication on the monetary framework and operations via the CBUAE website;
  - coordinate closely with other government entities to better anticipate cash flows;
  - statutory reserve requirements complement open market operations, but further increases beyond the historical level of 14 percent for demand deposits should be avoided without careful consideration of broader policy mix on bank balance sheets;
  - rely more on M-Bills as the market develops.
- Domestic capital market development:
  - local-currency debt markets reached 21 percent of all currency debt markets ($55 billion) in 2023, from 0.5 percent in 2020;
  - investors show strong appetite for T-bonds and the recently launched T-sukuk;
  - support efforts to build a dirham sovereign yield curve and deepen domestic capital markets via CBUAE–Ministry of Finance cooperation.

### Exchange rate policy
- The exchange rate peg continues to be an appropriate and credible policy anchor for the UAE.
- CBUAE foreign reserves have increased and remain adequate, including according to the IMF’s ARA metric.
- Over the longer term, CBUAE could consider exploring more flexibility in setting its policy rate to support further development of the non-hydrocarbon sector.

### Authorities’ views on financial stability and digitalization
- Authorities agreed on the need to monitor financial stability risks, noting:
  - banking sector has substantial capital and liquidity buffers;
  - creation of the Financial Stability Council will further enhance financial stability;
  - close monitoring of real estate sector developments and adequacy of regulatory and supervisory framework;
  - efforts to rein in domestic surplus liquidity using available DMF tools amid unprecedented net capital inflows;
  - commitment to promoting sustainable finance and broadening climate-related financial stability monitoring to the insurance sector;
  - substantial progress in combating money laundering and terrorism financing;
  - fast progress in digitalizing payments and financial systems, with CBUAE payment token regulation based on international standards.

### Fiscal sustainability, spending, and revenue mobilization
- Fiscal buffers remain robust; fiscal policy continues to support national priorities.
- Recent fiscal developments:
  - after fiscal consolidation in 2022, the non-hydrocarbon primary deficit increased somewhat in 2023 and 2024 to support investment, particularly in infrastructure and transport (on- and increasingly off-balance sheet);
  - current spending and growth of the wage bill remained contained;
  - subsidies remained important, accounting for over 1.6 percent of GDP;
  - review of welfare benefits should be finalized to ensure effective targeting and remove remaining price controls as price pressures in tradables have abated.
- Medium-term fiscal stance:
  - staff recommend gradual growth-friendly fiscal consolidation of the non-hydrocarbon primary fiscal deficit of around 3 percent by 2030, supported by fiscal rules and aligned with the medium-term fiscal framework (MTFF);
  - measures: tax policy reforms, gradual removal of subsidies alongside measures to enhance social safety nets, and increasing spending efficiency.

### Tax reform priorities and administration
- Corporate income tax (CIT):
  - a general federal corporate income tax (CIT) of 9 percent was implemented on June 1, 2023;
  - the CIT will create a new non-hydrocarbon revenue stream from 2025;
  - a public consultation on Pillar II was launched in March 2024;
  - UAE’s implementation of Global Anti-Base Erosion (Pillar II rules) will proceed in line with global trends while minimizing compliance burden;
  - CIT implementation should be finalized as soon as feasible in line with international best practice, including revenue sharing between federal and local governments;
  - limit incentives and avoid discretionary elements in allocations, especially profit-based incentives.
- Other tax options to support revenue mobilization:
  - explore property taxes, luxury taxes, or environmental levies;
  - reduce tax complexity by phasing out opaque business fee structures and minimizing exemptions and special cases.
- Tax administration:
  - continue efforts to broaden the tax base and improve efficiency of tax collection and administration;
  - despite healthy non-hydrocarbon GDP growth, non-hydrocarbon revenue collection remained broadly flat over the past three years;
  - additional efforts to close the tax gap include enhancing capacity of the Federal Tax Authority (FTA) to enforce compliance, greater digitalization, and expediting dispute resolution;
  - legal obstacles related to accessing bank information, adjusting penalties, compensating taxpayers, and ensuring transparency should be resolved.
- Other existing tax measures:
  - VAT set at 5 percent (introduced January 2018);
  - excise tax introduced in 2017.

### Public expenditure efficiency, investment management, and SALM
- Improve efficiency of public expenditure and public investment management by:
  - consolidating on- and off-balance sheet public initiatives and streamlining the UAE budget;
  - prioritizing, reviewing, and cutting redundant or low-impact programs;
  - conducting performance-based budgeting and rigorous cost-benefit analysis to prioritize projects with higher social, environmental, and economic returns;
  - continuing modern technology adoption (including artificial intelligence (AI));
  - developing strategic public financial management consistent with the MTFF;
  - progressing on greening fiscal frameworks and fostering sustainable finance, including considering gender budgeting and green public finance management (PFM) practices.
- Harmonized medium-term fiscal (MTF) and sovereign asset-liability management (SALM) frameworks:
  - priority to establish harmonized UAE MTF and SALM frameworks aligned with emirate-specific credible fiscal anchors and rules;
  - SALM will improve monitoring of sovereign fiscal risks and enable cost-effective risk-based management of public sector debt and assets;
  - adoption of SALM critical given importance of sovereign wealth funds (SWFs), GREs, and growing role of PPPs in investment strategy;
  - an initial assessment of the UAE’s public sector balance sheet (PSBS) suggests a healthy sovereign balance sheet with significant assets and limited leverage.

*Source: IMF staff and UAE authorities as presented in the provided content.*

### Box 3. United Arab Emirates: Understanding the Public Sector Balance Sheet in the UAE:

### Box 3. United Arab Emirates: Understanding the Public Sector Balance Sheet in the UAE

### Public sector balance sheet estimates (PSBS approach)
- Two measures estimated using a PSBS approach: a narrow measure for general government and a broader measure for the whole public sector.
- Narrow/general government estimates (end-2023):
  - General government net worth: 187.8 percent of UAE GDP.
  - General government net financial worth: 15.9 percent of GDP.
- Broader/public sector estimates (end-2023):
  - Public sector net assets: close to 1,  100 percent of GDP.
  - Public sector net financial assets: 453.3 percent of GDP.
- Change over time:
  - UAE net worth increased from close to 1,0 70 percent of GDP in 2021 to about 1,100 percent of GDP in 2023.

### Assets, liabilities, and composition (2023)
- Asset composition (share of UAE total assets):
  - SWFs: 32.4 percent.
  - Fixed assets: 15.6 percent.
  - Hydrocarbon assets: 43 percent.
- Liabilities:
  - Total liabilities: 103.6 percent of GDP, almost equally distributed among general government, GREs, and the CBUAE debt.
- Note: Assets and liabilities of public financial corporations, except CBUAE, are excluded to avoid double counting.

### Fiscal governance, transparency, and compilation recommendations
- Priority actions to strengthen fiscal governance and transparency:
  - Leverage progress under the UAE Fiscal Policy Coordination Council to consolidate overall fiscal stance, enhance data, and institutionalize information sharing for compilation of general government statistics according to the Government Finance Statistics Manual (GFSM) 2014.
  - Review sectoral classification of independent public sector entities and continue revision of the functional classification of emirates’ government expenditures.
  - (i) Map an International Public Sector Accounting Standards (IPSAS) statement of cash flows detailing sources and uses of cash according to the GFSM 2014.
  - (ii) Compile preliminary transactions in financial assets and liabilities and provide them to the MoF for consolidation.
  - (iii) Assess the data sources for the compilation of the public balance sheet.
  - Compile and disseminate central and general government debt statistics, contingent liabilities (including PPPs), and the overall PSBS to allow comprehensive assessment of fiscal risks.

### Authorities’ views (selected)
- Acknowledged recommendations on maintaining fiscal prudence while continuing fiscal structural reforms and enhancing medium-term fiscal and asset-liability management frameworks.
- Noted ongoing reforms will require larger investment, including through PPPs and to ensure resilience to climate change.
- Emphasized progress on enhancing emirate-specific and federal fiscal frameworks and coordination with the CBUAE on domestic capital market development.
- Expect non-hydrocarbon revenue to strengthen over time with dynamic private sector growth, the introduction of federal corporate income tax, and enhanced administration and compliance in relation to all federal taxes.
- Requested new Technical Assistance (TA) to improve data collection, compilation and dissemination; specifically requested TA to improve CPI and national accounts compilation as well as for the transition from eGDDS to SDDS.

### Structural policies to support diversification and sustainability
- Priority areas and initiatives:
  - Trade and FDI: progressive opening to foreign capital and talent; recent Federal Law on PPPs and a national investment strategy via the Ministry of Investment; largest-ever bilateral FDI agreement to develop prime real estate projects in Egypt.
  - Regulatory overhaul: comprehensive legislative overhaul under the “UAE Legislation” platform and regulatory sandboxes (“Reglab”).
  - Energy transition and green investment: plans to triple renewable energy supply by 2030 with an additional $54 billion (or 2   percent of GDP per year) investment; 2022 announcement of $160 billion in investment to develop clean and renewable energy in support of 2050 targets.
  - SMEs: SMEs account for 94 percent of companies operating in the UAE (or 63 percent of non-hydrocarbon GDP) in 2023; challenges remain in accessing credit; welcome implementation of OECD recommendations on credit information, collateral alternatives, and innovation.
  - Labor market and social reforms: 2023 mandatory unemployment insurance scheme for all Emiratis and residents; new laws on pension and social security for UAE nationals; authorities expect to spend $ 1.7 billion in the National Program for Emiratization (NAFIS) to raise employment of UAE nationals in the private sector by about 40 percent in 2024.
  - AI and digitalization: AI and Digital Economy Strategies, National Program for AI, and UAE AI Council; need careful risk assessment, robust governance frameworks, data infrastructure, social safety nets, and coordination across UAE strategies.
  - Intellectual property: strengthened laws including geographical indications and untraditional trademarks; adhesion to the Madrid Protocol in 2021; note that the UAE Intellectual Property Rights Index declined in 2023 with deteriorating judicial independence and weaker perception of intellectual property rights protection.

### Data issues and capacity development
- Data provision: some gaps but broadly adequate for surveillance.
- Authorities committed to meeting IMF’s e-GDDS and working toward SDDS subscription.
- Creation of the Data Office and improved coordination between federal and emirate statistics agencies are commendable.
- Remaining gaps: timeliness, periodicity, and full coverage of national accounts, fiscal sector, and external sector statistics; lack of detailed external statistics and data gaps on GREs and SWFs hinder comprehensive external sector assessment.
- Addressing data gaps on central and general government debt statistics and the overall public sector balance sheet would strengthen fiscal risk assessment.
- IMF stands ready to support authorities with additional capacity development.

### Staff appraisal — key messages and policy guidance
- Growth and buffers:
  - Economic growth is positive, driven by strong domestic activity and modernization/diversification efforts.
  - Substantial sovereign buffers mitigate vulnerabilities from elevated regional and global risks.
  - Ample fiscal space should be deployed strategically toward high growth and sustainability areas to support productivity and private sector development.
- Financial sector stability:
  - Banking system resilient but requires continued close monitoring due to rising real estate prices, rents, and climate risk uncertainty.
  - Recommend finalizing the Standards for Bank Real Estate Exposure with a lower threshold and implementing higher capital requirements for large exposures.
  - Consideration of a countercyclical capital buffer and establishment of the Financial Stability Council; staff encourage authorities to request an FSAP.
  - Continued progress on strengthening AML/CFT framework is essential.
- Monetary and liquidity management:
  - Finalizing the monetary framework will strengthen management of surplus liquidity.
  - Implementing the M-bill buyback program and fine-tuning facilities will help develop the M-Bills market, absorb surplus liquidity, and tighten policy rate transmission.
  - Efforts to develop domestic capital markets and green and Islamic finance products will support liquidity management and climate resilience.
  - Further hikes in reserve requirements beyond 14 percent should be avoided.
- Fiscal policy and tax reforms:
  - Sustain fiscal prudence and reforms to balance medium-term fiscal sustainability and development objectives.
  - Contain current expenditure, advance tax policy reforms, gradually remove subsidies, and enhance spending efficiency to support consolidation and further declines in public debt.
  - Finalize CIT implementation, phase out current fee structures, review incentives and exemptions, and enhance tax administration to ensure efficiency and close the tax revenue gap.
- Fiscal and asset-liability management frameworks:
  - Develop harmonized medium-term fiscal frameworks and sovereign SALM frameworks to ensure fiscal policy efficiency and strengthen transparency.
  - Harmonize emirate-specific and federal fiscal rules and objectives in MTF frameworks to define a national fiscal stance, improve budgeting efficiency, track fiscal risks, and ensure efficient public investment management.

*Source: Box 3, United Arab Emirates: Understanding the Public Sector Balance Sheet in the UAE (IMF).*

### 42. Careful prioritization of reform initiatives and strategies will support medium-term

### 42. Careful prioritization of reform initiatives and strategies will support medium-term potential growth and climate resilience.

### Reform priorities and integration
- Reforms to leverage trade and FDI, harness digitalization and AI, and achieve net zero emissions can be further integrated.
- Underpinning this agenda with robust governance frameworks and additional efforts to strengthen institutions, modernize labor markets, and close gender gaps will enhance outcomes.
- Avoiding crowding out of the private sector amid large public investment needs is crucial, and should be supported by further improving SMEs’ access to credit.

### Expected benefits and strategic emphasis
- Support medium-term potential growth and climate resilience through coordinated reform sequencing and prioritization.
- Balance large public investment needs with private-sector development by improving SME access to credit and preventing crowding out.

### 43. Maintaining momentum in data collection and dissemination efforts should be a top priority.

### Current data situation and commitments
- UAE data provision to the Fund has some gaps, but remains broadly adequate for surveillance.
- The authorities remain fully committed to closing exiting data gaps, including by increasing capacity, undertaking TA, and seeking to harmonize data collection across emirates.

### Remaining actions to meet standards
- Further progress is needed to ensure compliance with the IMF’s enhanced e-GDDS and advance toward higher standards.

*Source: 1areea2024001-print-pdf - 42. Careful prioritization of reform initiatives and strategies will support medium-term*

### 44. Staff propose that the next Article IV consultation with the UAE follow the standard

### Staff propose that the next Article IV consultation with the UAE follow the standard 12-month cycle.

### Recent economic developments and near-term outlook
- Real GDP (annual percent change): -5.0; 4.4; 7.5; 3.6; 3.7; 5.0; 4.8; 4.6; 4.3; 4.3
- Real hydrocarbon GDP (annual percent change): -3.8; -1.1; 8.5; -3.1; 0.2; 7.3; 6.3; 5.2; 4.0; 3.5
- Real nonhydrocarbon GDP (annual percent change): -5.4; 6.5; 7.1; 6.2; 4.9; 4.2; 4.3; 4.4; 4.4; 4.5
- CPI inflation (average, percent): -2.1; -0.1; 4.8; 1.6; 2.2; 2.0; 2.0; 2.0; 2.0; 2.0
- Crude oil production (millions of barrels per day): 2.8; 2.6; 3.1; 3.0; 2.9; 3.2; 3.5; 3.8; 4.0; 4.1

### External and balance of payments developments
- Current account balance (billions USD): 21.1; 48.0; 66.5; 54.8; 49.2; 50.0; 49.6; 48.3; 45.1; 44.8
- Current account balance (percent of GDP): 6.0; 11.5; 13.2; 10.7; 9.1; 8.8; 8.3; 7.6; 6.8; 6.4
- Exports (FOB, billions USD): 272.2; 323.3; 367.5; 396.7; 426.8; 447.3; 468.8; 492.0; 517.7; 548.1
  - Oil and oil products (billions USD): 31.3; 54.6; 83.4; 77.6; 77.1; 77.3; 77.9; 78.6; 79.1; 80.1
  - Non-oil (billions USD): 107.4; 113.0; 100.3; 115.3; 131.3; 143.8; 153.4; 163.7; 174.8; 188.4
  - Re-exports (billions USD): 128.0; 147.5; 174.3; 194.3; 206.2; 214.2; 225.2; 237.2; 251.0; 266.5
- Imports (f.o.b., billions USD): -211.8; -244.3; -298.0; -339.0; -367.5; -387.1; -409.1; -433.5; -461.1; -491.0
- Gross reserves of central bank (billions USD): 106.5; 127.8; 135.3; 186.3; 199.7; 212.1; 225.4; 239.5; 254.5; 270.5
- Gross foreign assets (in months of next year's imports, net of re-exports): 7.3; 6.8; 6.4; 8.2; 8.2; 8.2; 8.2; 8.2; 8.2; 8.2

### Fiscal sector: revenues, expenditures, and fiscal balance
- Total revenue (percent of GDP): 28.7; 30.4; 33.1; 28.2; 28.3; 28.1; 27.8; 27.5; 27.4; 27.4
- Taxes (percent of GDP): 11.8; 13.0; 17.6; 17.6; 16.5; 16.5; 16.6; 16.7; 16.7; 16.8
- Expenditures (percent of GDP): 31.1; 26.4; 23.1; 23.3; 23.5; 23.5; 23.5; 23.3; 23.4; 23.4
- Net lending(+)/borrowing(-) (percent of GDP): -2.5; 4.0; 10.0; 5.0; 4.8; 4.7; 4.4; 4.2; 4.0; 4.0
- Adjusted nonhydrocarbon primary balance (percent of non-hydrocarbon GDP): -22.9; -20.3; -17.9; -18.7; -18.5; -18.0; -16.9; -15.8; -15.7; -15.5
- Fiscal breakeven oil price (US$ per barrel): 51.7; 53.0; 46.6; 52.8; 54.1; 51.3; 50.7; 49.2; 48.2; 46.9
- Hydrocarbon revenue (billions AED): 163.7; 243.6; 347.7; 261.0; 275.1; 286.8; 302.1; 311.4; 317.2; 324.9
- Nonhydrocarbon revenue (billions AED): 204.2; 220.2; 263.6; 272.1; 287.8; 302.1; 311.5; 329.3; 354.8; 384.5

### Monetary and banking sector
- Central bank gross foreign assets (billions USD): 106.5; 127.8; 135.3; 186.3; 199.7; 212.1; 225.4; 239.5; 254.5; 270.5
- Net foreign assets (billions AED, Monetary Survey): 5,176; 2,386; 3,863; 1,149; 1,334; 1,483; 1,628; 1,758; 1,897; 2,045
- Broad money (M2, billions AED): 1,479; 1,562; 1,703; 2,023; 2,233; 2,427; 2,621; 2,791; 2,972; 3,168
- Credit to private sector (billions AED; Table 4 claims on private sector): 1,128; 1,146; 1,194; 1,268; 1,344; 1,429; 1,520; 1,622; 1,731; 1,848
- Credit to private sector (annual change, percent): 0.2; -0.2; 2.0; -1.3; 6.0; 6.3; 6.4; 6.7; 6.7; 6.8

### Financial soundness indicators (selected)
- Regulatory Capital to Risk-Weighted Assets (percent): 18.1; 17.5; 17.7; 18.1; 17.1; 17.4; 17.9
- Regulatory Tier 1 Capital to Risk-Weighted Assets (percent): 16.6; 16.2; 16.5; 17.0; 16.0; 16.2; 16.6
- Non-performing Loans to Total Gross Loans (percent): 5.0; 5.3; 6.0; 7.6; 7.3; 6.6; 5.3
- Provisions to Nonperforming Loans (percent): 72.2; 70.3; 62.5; 58.7; 61.4; 60.9; 60.4
- Return on Assets (percent): 1.5; 1.5; 1.6; 0.7; 1.2; 1.5; 2.0
- Liquid Assets to Total Assets (percent): 15.1; 14.5; 15.0; 15.3; 16.4; 16.1; 18.5

### Real estate and housing indicators (selected)
- Apartment average residential sale price in Dubai (AED/Sqf): long-term series shown through 2024 (figures presented in charts).
- Housing Affordability Index (HAI) and Rental Affordability Index (RAI) for Dubai: indices shown 2014–2024 with HAI declining (less affordable) over recent years (figure series).
- Price-to-Rent Ratio and Price-to-Income Ratio: charted historical series with confidence intervals (2008Q1–2023Q1 and 2003Q1–2023Q1, respectively).

### Oil and gas sector highlights
- Average crude oil export price (US$): 43.3; 70.8; 99.0; 82.3; 82.5; 77.8; 74.4; 71.9; 70.1; 69.0
- Total liquids production and consumption series charted 2000–2022 (mil. barrels per day).
- Share of world and share of OPEC in crude oil production charted 2000–2022.
- Crude oil exports by destination, 2022 (percent of total): China 25%; India 13%; Japan 28%; Singapore 7%; Other Asia Pacific 25%; Rest of World 2%

### Climate, governance, and structural indicators (selected)
- Annual mean temperature and annual precipitation series plotted 1962–2022.
- Primary energy consumption per GDP (Thou. Btu per GDP $PPP) and energy consumption per capita (Millions of Btu/Person) presented with UAE above world average in charts.
- Worldwide Governance Indicators (2022) and Global Innovation Index (2022) scores presented in figures; labor force participation rates and proportion of women in managerial positions shown (time series).

### Key macro-financial interrelations and projections (figures and tables)
- Fiscal breakeven oil price and projections through 2029: 51.7; 53.0; 46.6; 52.8; 54.1; 51.3; 50.7; 49.2; 48.2; 46.9
- Projections of inflation and GDP growth through 2029 displayed in Figures 3 and 6 (time series and scenario projections).
- Central Bank reserves and months of imports (net of re-exports) stable at 8.2 months in projections through 2029.

*Source: IMF staff estimates, figures, and tables as presented in the content unit.*

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

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

### Fiscal: implementation status and key developments
- Developing and greening uniformed rules-based medium-term fiscal framework (MTFF): Delayed.
- Proceed with CIT implementation supported by phasing-out of opaque business fee structures: In progress. The CIT was introduced on June 1st, 2023.
- Pursue a detailed study on the economic impacts of fiscal incentives and exemptions: Postponed. The study is being pursued by the authorities to be finalised after full CIT implementation.
- Consider climate-PIMA and green PFM, and enhancement of PPP frameworks: In progress. The UAE introduced a new federal PPP law in December 2023.
- Publish consolidated general government budget plans, budget outcomes, and reconciliations with budgeted outcomes and sector spending; enhance public sector financial statistics:
  - Not implemented. The reconciliation tables are not available.
  - Information on public debt, guarantees, PPPs, SWFs, GREs’ and public sector balance sheets is scarce.
- Budgetary commitment for Emiratisation: $1.7 billion has been given to the National Program for Emiratisation (NAFIS) to promote employment of Emirati employees in the private sector.

### Monetary and financial sector: progress and remaining priorities
- Continue close monitoring of financial stability risks, including NPLs: In progress. Enhancement of the stress testing and forward-looking surveillance frameworks continues.
- Scale back COVID-19 crisis support measures: In progress. The LTV relaxation for first-time home buyers remains in place, as deemed appropriate by the CBUAE in the current context.
- Continue efforts to strengthen the macro-prudential and regulatory frameworks: In progress.
- Fully implement the DMF, in line with the IMF technical assistance recommendations: Largely implemented. Efforts should focus on the implementation of the remaining liquidity facilities and building internal analytical capability for day-to-day operations.
- Carefully assess risks in digitalization of banking and payment sectors: In progress. Efforts should continue during and after rollout.
- Continue strengthening the AML/CFT regime: The UAE exited the FATF’s list of jurisdictions under enhanced monitoring in February 2024. Efforts to mitigate ML/FT risks should continue.
- Continue work by the UAE SFWG to develop principles for sustainable finance: Implemented. The principles were issued in November 2023.

### Structural reforms and climate/green transition
- Upgrade and operationalize frameworks to facilitate energy transition and scale-up investments in green initiatives and infrastructure (including renewables): In progress. The UAE has intensified efforts to ensure a smooth energy transition by accelerating net-zero targets and proceeding with investments in renewables and advanced technology.
- Prioritize and sequence reforms to enhance trade and FDI and increase the role of digitalization: In progress. Reform implementation in line with the AI, Green Economy, and Digital Economy Strategy 2030.
- Proceed with additional measures to improve the business environment, modernize labor markets, increase human capital and educational outcomes in emerging fields, and leverage gender-positive policies: In progress. A comprehensive legislative overhaul has been undertaken under the “UAE Legislation” platform. February 2024, a budget of $1.7 billion has been given to NAFIS.

### Statistics: data gaps and ongoing work
- Produce and publish external statistics. The CBUAE should provide adequate staffing to ensure its completion:
  - Delayed. Implementation is delayed due to capacity constraints. The CBUAE recently hired 15 new staff to proceed with the implementation.
- Finalize revisions to the CPI basket weights and disseminate CPI series using new weights: In progress. The authorities published the 2023 quarterly data and the revised CPI basket.
- Produce and publish quarterly GDP and national accounts data on timely basis:
  - In progress. Quarterly GDP by industry is published on a quarterly basis with a good timeline. GDP by expenditure is only published on annual basis.
- Continue working toward subscribing to the special data dissemination standards (SDDS): In progress.

*IMF staff summary of implementation status from Annex I.*

---

### Annex II. Sovereign Risk and Debt Sustainability (high-level findings)

### Medium-term sovereign risk assessment
- Debt fanchart index (DFI): 1.3 — Risk signal: Moderate.
- Average baseline Gross Financing Needs (GFN): 2.4 (percent of GDP) — GFN financeability index (GFI): 5.3 — Risk signal: Low.
- Final assessment: Medium-term risks are assessed as low, consistent with the mechanical "low" signal.
- Probabilities (2024–2029):
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 9.1 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 54.5 pct.
- Commentary: Gross financing needs under the stress scenario are small. Large sovereign net financial assets mitigate risks.

*IMF staff estimates and projections summarized from Annex II.*

---

### Annex III. External Sector Assessment

### Overall assessment and policy implications
- Overall assessment: The current account in 2023 is estimated to be broadly in line with the level implied by medium-term fundamentals and desirable policies. Supported by central bank reserves and substantial SWFs’ assets, the external balance sheet remains strong.
- Outlook: From 2024 onward, the projected current account balance is expected to decline as oil prices stabilize and imports pick up, but it will remain above what is needed to ensure sufficient saving for future generations.
- Potential policy responses:
  - Maintain fiscal discipline to manage oil windfalls and consolidate within a transparent medium-term framework to bring the current account balance closer to the level required for intergenerational equity.
  - Advance structural reforms to diversify the economy to strengthen the external position.

### Foreign assets, liabilities, and reserves
- NIIP estimates:
  - NIIP is estimated at $871.9 billion (169.6 percent of GDP) at end-2023.
  - NIIP is expected to increase to $942.2 billion (173.6 percent of GDP) by end-2024 because of stronger growth of foreign assets.
- 2023 (% GDP) NIIP breakdown: NIIP: 169.6 Gross Assets: 255 Debt Assets: 36.2 Gross Liab.: 85.6 Debt Liab.: 85.6
- Gross FX reserves: $186.3 billion (36.2 percent of GDP, 8.2 months of imports and 100 percent of the Fund’s reserve adequacy metric) at end-2023. From 2024 onward, reserves are expected to slightly increase as non-oil exports pick up.
- Assessment: External balance sheet is strong; substantial accumulated assets provide protection against oil price volatility and savings of exhaustible resource revenues for future generations.

### Current account performance and projections
- Current account history and projections:
  - 2022 current account: 13.2 percent of GDP.
  - 2023 current account: 10.7 percent of GDP.
  - 2024 projected current account: 8.8 percent of GDP (on the back of OPEC+ voluntary cuts).
- Key factors:
  - Hydrocarbon production lower overall; 16-percent reduction of oil export prices versus prior year, but volume of crude oil exports relatively stable in 2023 compared to 2022.
  - Terms of trade deteriorated by 3.5 percent in 2023.
  - Trade in services has continuously grown since the Covid Crisis (strong activity in tourism and transportation).
  - Project of the 50 and sizeable investment expected to increase imports of intermediate and final goods; non-oil exports expected to increase over the medium term.
- Consumption Allocation Rules and CA gaps:
  - The Consumption Allocation Rules suggest a CA gap of 6.7 percent of GDP for the constant real annuity and -0.4 percent of GDP for the constant real per capita annuity allocation rules.
  - CA-regression approach estimates a CA gap of -0.3 percent of GDP.
  - Staff assess a CA gap of -0.3 percent of GDP with a range from -1.5 to 0.9 percent of GDP in 2023.

### Real exchange rate assessment
- Exchange rate regime: The dirham pegged to the US dollar at a rate of 3.6725 since November 1997.
- REER and NEER movements:
  - Between December 2022 and 2023, the REER depreciated by 3.0 percent, while NEER appreciated by 2.9 percent on average.
  - Since the beginning of the year, the REER has been stable while the NEER has appreciated by 1.6 percent.
- Assessment: Based on an elasticity of 0.65, staff assess the REER to be overvalued by about 0.4 percent with a range of -1.4 to 2.3 percent.

### Capital and financial account flows
- Financial account and FDI:
  - Net FDI expected to turn from $-  2.1   billion in 2022 to 8.4 billion in 2023.
  - In 2024, the financial account is expected to deteriorate with increasing outward FDI and official capital.
- Assessment: Open capital account; large central bank reserves and SWFs’ assets limit risks. Data gaps on capital flows and GREs and SWFs complicate analysis.

### Key assumptions and metrics
- Average oil export price assumed: $82.3 a barrel in 2023 ($99.0 a barrel in 2022).

*IMF staff external sector assessment summarized from Annex III.*

---

### Annex IV. Risk Assessment Matrix (selected risks, likelihoods, impacts, and policy responses)

- Intensification of regional conflicts
  - Likelihood: High
  - Expected impact: Low/Medium
  - Key channels: Disrupt trade (energy, food, tourism, supply chains), remittances, FDI, financial flows, payment systems; increase refugee flows.
  - Policy response: Temporarily loosen fiscal stance for targeted spending to shield vulnerable households; prepare/communicate future consolidation measures; continue close monitoring of financial system risks and tighten macroprudential policies as required; advance structural reforms to enhance competitiveness and diversification.

- Commodity price volatility
  - Likelihood: High
  - Expected impact: High
  - Expected effects: Higher oil price improves fiscal and external positions but adds inflationary pressures; lower oil prices lead to negative spillovers in non-hydrocarbon sector.
  - Policy response: Continue adhering to fiscal rules and enhancing fiscal buffers; fiscal structural reforms to reduce reliance on oil revenue; strengthen social safety nets; monetary tightening in line with Fed; deploy the DMF and monitor domestic liquidity; continue structural reforms for diversification and greener transition.

- Monetary policy miscalibration
  - Likelihood: Medium
  - Expected impact: Medium
  - Policy response: Carefully calibrate fiscal policy and limit new debt accumulation; strengthen fiscal risk management and oversight of GREs; monitor financial system risks and tighten macroprudential policies as needed; continue reforms to ease access to foreign markets and labor.

- Abrupt global slowdown
  - Likelihood: Medium
  - Expected impact: Medium/High
  - Policy response: Temporarily loosen fiscal stance for targeted protection of vulnerable groups; ensure financial system stability and tighten macroprudential policies as required; accelerate structural reforms for diversification; improve social safety nets.

- Natural disasters related to extreme weather events
  - Likelihood: Medium
  - Expected impact: Medium/Low
  - Policy response: Scale up investments for adaptation projects and climate-resilient infrastructure; incorporate climate risks into prudential policies; improve social safety nets; save windfall revenue and pursue fiscal/structural reforms and green budgeting.

- Disorderly energy transition
  - Likelihood: Medium
  - Expected impact: Medium
  - Policy response: Step-up economy diversification away from hydrocarbons; front-load investments into renewables and green technologies; accelerate MTFF and SALM frameworks; foster green and sustainable finance; adapt prudential policies to manage systemic climate risk.

- Cyberthreats
  - Likelihood: Medium
  - Expected impact: Medium/Low
  - Policy response: Integrate cybersecurity risk analysis into CBUAE and freezone frameworks; enhance cyber risk mitigation via supervision of the financial system.

*Risk Assessment Matrix entries summarized from Annex IV.*

*Annexes I–IV content extracted from the IMF staff report chapter provided.*

### Annex V. Data Issues

### Annex V. Data Issues

### Assessment of data adequacy and use of external sources
- United Arab Emirates participates in the Enhanced General Data Dissemination System (e-GDDS) and publishes the data on its National Summary Data Page since June 2018.
- Use of data and/or estimates different from official statistics in the Article IV consultation:
  - Data from BIS are used to partially estimate IIP.
  - Staff uses estimates based on publicly available information from Bloomberg, Dealogic, Haver, S&P, EPFR, Zephyr, SWFI and other data providers to assess public overall debt and contingent liabilities, foreign assets of sovereign wealth fund, government domestic investment and also estimates for data related to the fiscal operations of the Abu Dhabi government and Abu Dhabi pension funds.
  - Governance indexes are from World Intellectual Property Organization Administration, Property Rights Alliance and World Governance Indicators.
  - Energy-related data are from OPEC, International Energy Agency, BP, Energy Institute, Bloomberg NEF, U.S. Energy Information Administration and Rystad Energy.
  - Bilateral trade data are from UNCTAD.
  - Real estate data are from BIS and REIDIN.
  - AI data are from other providers listed in staff sources.

### Data gaps, shortcomings, and priorities
- Other data gaps and priorities:
  - Improve data on social economic indicators such as population, employment, unemployement, GDP by expenditure.
  - Additional efforts needed to collect and disseminate comprehensive climate related dashboards and taxonomies.
- Rationale for staff assessment:
  - Data provision has some gaps but remains broadly adequate for surveillance.
  - Substantial shortcomings on external sector statistics, accounts of government-related entities (GREs), and sovereign wealth funds (SWFs).
  - Data on Central Government Debt, External Debt, and International Investment Position (IIP) are not provided.
  - Fiscal statistics granularity and consistency need enhancement.
  - Limited data on government sovereign assets, GREs’ debt, and contingent liabilities to the government.
  - UAE statistical agencies are gradually improving availability and quality, but more progress is needed to improve consistency, frequency, and availability.

### Changes since the last Article IV consultation and recent capacity development
- Notable changes and steps taken:
  - The timeliness of the national accounts’ publication has improved.
  - The CPI basket weights and CPI series using new weights have been disseminated.
  - The CBUAE has enhanced their resource capacity for the BoP and IIP compilation purposes and requested IMF BoP CD to improve the quality of their estimates.
  - The MoF requested training (conducted in January - February 2024) to build capacities of fiscal data compilers in the Emirates and Federal offices to support the UAE MoF's efforts in improving GFS and PSBS compilation and reporting in line with the Government Finance Statistics Manual 2014 (GFSM 2014) and the Public Sector Debt Statistics Guide (PSDSG 2013).
- Corrective actions and capacity development priorities:
  - Authorities remain fully committed to the IMF’s enhanced general data dissemination systems (e-GDDS) and continue to work toward subscribing to the special data dissemination standards (SDDS).
  - Further efforts are needed to increase timeliness, periodicity, and full coverage of data reporting, including national accounts, fiscal sector, and external sector statistics (jointly with IMF Technical Assistance).
  - Authorities will need to disseminate data on central government gross debt, international investment position, external debt, and the data template on international reserves and foreign currency liquidity to meet SDDS requirements.

### Data standards initiatives and data provision logistics
- Annex V. Table 2 notes:
  - Overall data adequacy assessment is based on staff's assessment of the adequacy of the country’s data for conducting analysis and formulating policy advice, considering country-specific characteristics.
  - Overall questionnaire assessment and individual sector assessments reported in the heatmap are based on a standardized questionnaire and scoring system.
  - Granularity cells distinguish reported government operations data vs. public debt statistics, and monetary statistics vs. Financial Soundness indicators.
- Annex V. Table 3 (Common Indicators Required for Surveillance) — metadata:
  - Date of table: As of June 7, 2024.
  - Frequency and timeliness codes used: “D” daily; “W” weekly; “M” monthly; “Q” quarterly; “A” annual; "I" irregular; "NA" not available.
  - Items listed include: Reserve/Base Money; Broad Money; Central Bank Balance Sheet; Consolidated Balance Sheet of the Banking System; Interest Rates; Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing (General Government and Central Government); International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt; Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities.
  - Note on reserves: Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions.
  - Note on interest rates: Both market-based and officially determined rates, including discount rates, money market rates, rates on treasury bills, notes and bonds.
  - Note on financing: Foreign, domestic bank, and domestic nonbank financing.
  - Note on general government: Consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

*Source: Annex V. Data Issues (United Arab Emirates), IMF staff assessment and accompanying tables, as provided in the content unit.*

### 4. The UAE CIT implementation also includes the use of tax exemptions and fiscal

### 4. The UAE CIT implementation also includes the use of tax exemptions and fiscal incentives

### CIT scope, rates, and exemptions
- CIT Tax Rate: The tax rate of 9 percent is levied on companies with profits above AED 375,000.
- Exemptions: In addition to the oil and gas sector, government entities and government-controlled entities are exempt from the tax.
- Government entities are exempt unless conducting business under a License issued by a Licensing Authority.

### Free zones and Qualifying Free Zone Persons (QFZPs)
- Free Zones: Businesses operating within designated FZs can apply a zero-tax rate on qualifying income, provided they meet specific criteria regarding substance and activity type.
- QFZP introduction: The regime introduces Qualifying Free Zone Persons (QFZPs).
- Compliance deadline/condition: FZ businesses should have reviewed their footprint and profile to ensure compliance with all conditions by January 1, 2024.
- Non-qualifying income: The income of a QFZP which is not Qualifying Income will be taxed at a 9 percent CT rate.
- QFZP qualification conditions (must meet all):
  1. it must be a FZ Person (i.e., a juridical person incorporated, established or otherwise registered in a FZ, including branches);
  2. maintain adequate substance in the UAE;
  3. derive qualifying income (defined by Ministerial Decision No. 265 of 2023 Regarding Qualifying Activities and Excluded Activities, and Cabinet Decision No. 100 of 2023 on Qualifying Income);
  4. not have made an election to be subject to the standard UAE CIT regime;
  5. comply with all transfer pricing rules and documentation requirements;
  6. meet any other conditions as prescribed by the MoF.
- Contextual notes in source: There are 46 FZs in the UAE; free zones allow for up to 100 percent foreign ownership and historically have no taxation or customs obligations for activities inside the zones. Effective March 1, 2024, an administrative penalty of AED 10,000 is imposed for failure to submit a tax registration application for Corporate Tax within the timeframes outlined in the decision issued by the Federal Tax Authority.

### SME and restructuring incentives; loss treatment
- SMEs incentives: The CIT framework provides relief measures for start-ups and SMEs, including exemptions from certain provisions, offering various incentives to facilitate tax compliance.
- Business restructuring relief: The CIT Law provides tax relief on mergers, spin-offs and other corporate restructuring transactions where a whole or independent part of a business is being transferred in exchange for shares or other ownership interest, provided that specific conditions are met.
- Loss offset: UAE taxpayers can offset tax losses against taxable income of subsequent tax periods, up to a limit of 75 percent of the taxable income for the relevant period. Unused tax losses can be carried forward indefinitely until fully utilized.

### Implementation challenges and administrative issues
- Complexity and capacity: Challenges reflect the CIT framework’s complexity, operational adjustments, accounting considerations, and lack of skilled trained tax professionals.
- Compliance burden: Understanding and complying with the CIT implications can be challenging due to intricate rules and conditions; businesses may face adjustment costs associated with implementing new compliance procedures and potentially restructuring operations to optimize tax efficiency.
- Accounting and administrative needs: Proper accounting practices are crucial to avoid adverse tax consequences; ensuring smooth administrative processes and providing clear guidance to businesses are crucial for minimizing disruption.
- Human resources: Attracting and retaining skilled tax professionals within the UAE will be essential to support businesses navigating the new tax landscape effectively.
- Outstanding elements: Some elements of the CIT regime, for example the revenue sharing mechanism between federal and local governments and the rate levied on multinationals are still under discussion.
- International context: Multinationals will be subject to the CIT under the regular UAE CIT regime until the Pillar II rules are officially adopted by the UAE.

### Tax administration assessment and recommendations
- TADAT assessment: In 2023, the FTA requested the IMF to lead a Tax Administration Diagnostic Assessment Tool (TADAT) assessment of the administration of taxes.
- Findings: The structured assessment established sound or good international practice in many of TADAT performance outcome areas that assess taxpayer services, supporting voluntary compliance, and the use of digital and electronic systems and processes.
- Capacity gaps and legal impediments: The FTA should continue developing capacity in enforcing tax compliance and ensuring accurate reporting. There are a few legal impediments in the areas of access to bank information, the ability to adjust penalties in response to taxpayer behavior, the ability to pay compensation to taxpayers, and the ability to publish information to provide transparency and accountability to citizens. Each of these will need to be reviewed to further enhance the FTA’s ability to effectively collect taxes.
- Enforcement dynamics: While there are good systems to encourage on-time filing and payment, additional work is required to ensure that actual levels of filing and payment are improved, and the timing of dispute resolutions decreased.
- Interaction with minimum corporate tax: Tax enforcement incentives may change as a minimum corporate tax rate is adjusted to comply with the currently set international minimum CIT rate; tax enforcement incentives may change under a minimum corporate tax, for example low-tax countries could reduce their efforts in tax enforcement.

*Source: 1areea2024001-print-pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1areea2024001-print-pdf.pdf_