## 1. UAE Resilience to Global Shocks ## Source details **Canonical URL:** [1. UAE Resilience to Global Shocks](https://www.imf.org/-/media/files/publications/cr/2025/english/1areea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1areea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1areea2025001-source-pdf.pdf.json) --- ### Context - UAE demonstrated significant resilience to global uncertainty, regional conflicts, and lower and more volatile oil prices. - Growth supported by economic diversification and exports; expected fastest among GCC countries and well above global average in 2025. - Direct impact of the US tariff expected to be limited. - Role as global financial and trade hub increases exposure to spillovers from global shocks and shifts in global trade policy and financial conditions. - Large investments abroad, including a recently announced $1.4 trillion investment package in the US, and strong FDI inflows expected to spur medium-term growth. - Policy implication: policies should remain agile and accompanied by supportive reforms to ensure ambitious investments translate into strong and sustainable growth. ### Recent Economic Developments - Growth and inflation (selected indicators): - GDP growth: 4.0 percent in 2024; 3.9 percent overall growth in 2025Q1. - Non-hydrocarbon activity growth: 5.3 percent in 2025Q1. - Oil production growth: 2.1 percent during January–July of 2025 (yoy). - Average inflation: 0.6 percent in 2025Q2 (down from 1.4 percent in 2025Q1). - Inflation drivers: lower food prices and reduced transportation costs; offset by sustained increases in housing-related costs. - Fiscal sector (selected indicators): - Overall fiscal surplus: 6.4 percent of GDP in 2024. - Oil revenues grew by 16.7 percent yoy in 2024. - Non-hydrocarbon primary deficit: widened to 17.1 percent of non-hydrocarbon GDP in 2024. - General government debt: about 35 percent of GDP in 2024. - External sector and reserves: - Current account surplus: 14.5 percent in 2024 (up from 13.1 percent in 2023). - Foreign reserves: adequate at 7.6 months of imports. - Real effective exchange rate: IMF data -0.3 percent yoy in December 2024; BIS data imply +1.4 percent yoy in December 2024. - Financial account: larger deficit in 2024 reflecting a substantial increase in outward FDI (ADQ’s $24 billion investment in Egypt) and continued reserve accumulation by CBUAE. - Assessment: external position in 2024 broadly in line with level implied by medium-term fundamentals and desirable policies. - Financial sector (2025Q2 regulatory ratios and asset quality): - Tier 1 Capital Ratio: 16.0 percent. - Liquidity Coverage ratio: 153.2 percent. - Net Stable Funding Ratio: 113.7 percent. - Aggregate gross non-performing loans ratio: 3.4 percent. - Net NPL ratio: 1.5 percent. - Private sector credit growth: 8.6 percent in 2024; 9.2 percent yoy in 2025Q2. - Real estate (2020Q1 to 2025Q2, Dubai Land Department and ADREC data): - Dubai: Villas +117.6 percent; Apartments +46.2 percent; Commercial properties +76.0 percent. - Abu Dhabi: Villa values +31.4 percent; Apartment values +22.4 percent. - Housing transactions non-mortgaged: Abu Dhabi 2024: 60 percent of total transaction values; Dubai 2024: 83.4 percent of all residential transactions. - Banks’ total exposure to residential and commercial real estate sector: 18.3 percent of total CRWA in 2025Q2. - Direct residential real estate lending: 4.6 percent of total gross loans in 2024. - Commercial real estate loans: 13.6 percent of total gross loans in 2024. - Multivariate Filter analysis: real house prices currently above trend; cyclical component mainly correlated with non-oil GDP growth and liquidity. ### Outlook and Risks - Growth projections: - 2025 GDP: projected to expand by 4.8 percent. - Non-hydrocarbon growth: 4.6 percent in 2025. - Hydrocarbon GDP: projected 5.3 percent rebound in 2025. - 2026 GDP: projected to accelerate to 5.0 percent. - Hydrocarbon GDP contribution in 2026: 6.3 percent. - Non-hydrocarbon GDP in 2026: 4.6 percent. - Inflation: - Projected at 1.6 percent in 2025 and around 2 percent over the medium term. - Main drivers: housing-related costs; tradables remain subdued. - Trade policy shock impact: - Affected exports to the U.S. account for less than 3 percent of total UAE exports; direct impact of recent U.S. tariff measures expected to be limited. - PortWatch trade-volume proxy data indicate some spillovers from global trade policy changes. - Expansion of CEPAs expected to support external resilience and diversification. - Risk assessment: - Risks broadly balanced. - Downside risks: significantly weaker global growth, tighter financing conditions, reduced tourism, capital flows, and oil prices—potentially requiring use of fiscal and external buffers. - Real estate risk: potential for unexpected price correction if capital flows slow or investor sentiment shifts. - Medium-term downside risks: deeper geopolitical fragmentation, cybersecurity threats, and climate-related risks. - Upside factors: ongoing reforms, strong buffers, and large investment in infrastructure and AI. - Policy and shock scenarios: - For sizable adverse shocks (exceeding one standard deviation and sustained decline in oil prices), substantial fiscal space and financial buffers can be deployed to support non-oil activities, prioritizing growth-enhancing investments. - CBUAE has adequate tools to provide liquidity and use macro-prudential toolkit to ensure financial stability. - Sensitivity analyses indicate only a sizable and sustained decline in oil prices would have a material external and fiscal impact. ### Box 1 — Selected Findings on UAE Resilience to Global Shocks - Integration and synchronization: - UAE’s integration into the global economy through financial, investment, and trade linkages has increased synchronization with global business cycles; concordance indices, growth correlations, and trade openness with systemic economies have increased over time. - Empirical shock responses (method and coverage): - Local-projections method used. - Financial variables and tourism: daily data January 2021 to July 2025; cumulative impacts over five days. - Trade variables: monthly data January 2018 - December 2024; three-month cumulative effects. - Real estate prices: January 2004 – December 2023; three-month cumulative effects. - Key sensitivities (financial markets): - Markets most sensitive to VIX and USD movements, with selective sensitivity to changes in US 10-year yields, oil prices, and OVX. - Sovereign yield spreads: statistically significant responses to VIX, US 10-year yields, and oil price volatility. - Stock market returns: statistically significant responses to oil prices, USD, VIX, and OVX. - CDS spreads: higher sensitivity to VIX and OVX relative to other EMs. - Financial market impacts: - Bond flows: impacts of VIX and USD movements on bond flows are statistically significant; bond flows respond to shifts in US Treasury yields. - Equity flows: more sensitive to OVX; real estate equity prices react similarly to broader equity markets. - Housing prices: statistically significant responses only to USD movements. - Trade and tourism: non-oil goods exports sensitive to TPU and OVX; tourism resilient to various shocks. - Caveat: estimates may not fully capture impact of most recent trade policy changes. ### Authorities’ Views (macro outlook and assets) - Authorities broadly share staff’s assessment but expect: - Somewhat higher overall GDP growth. - Slightly lower inflation. - Authorities believe UAE has tools and buffers to navigate global uncertainty, citing sound policies, significant infrastructure investment, and strong competitiveness. - On real estate: price increases viewed as sign of durable demand supported by structural factors and international investors; past corrections characterized as gradual. ### Fiscal Policy: Stance, Projections, and Recommendations - Fiscal stance and projections: - Overall fiscal surplus for general government expected to be around 5 percent of GDP in 2025 and 2026, moderating to 4.5 percent in the medium-term. - Non-hydrocarbon primary deficit expected to gradually improve over the medium term, supported by implementation of the CIT and other indirect tax reforms. - Debt expected to decline, remain sustainable and backed by large SWF buffers. - Recommendations to strengthen fiscal framework: - Strengthen coordination among federal government, emirates, GREs, and SWFs to improve fiscal stance consistency and effective policymaking. - Continue progress on tax reform, revenue diversification, and medium-term fiscal planning. - Institutionalize operational-level fiscal coordination (enhance Fiscal Policy Coordination Council role). - Include GREs and SWFs in comprehensive public sector fiscal assessments. - Regularly monitor and systematically assess contingent liabilities, including government guarantees, PPPs, and potential financial sector exposures. - Continue reforms focusing on developing non-hydrocarbon tax instruments while simplifying and broadening the current tax structure; strengthen tax administration through targeted procedural reforms and simplification. ### Monetary and Exchange Rate Policy: Developments and Guidance - DMF enhancements and liquidity tools: - New liquidity management facilities improve liquidity management and reduce spread between DONIA and the Base Rate. - Introduction of the Overnight Murabaha Facility in 2025Q2 significantly contributed to narrowing the DONIA-Base Rate spread. - Surplus liquidity should continue to be absorbed through M-Bills (including planned issuance of sustainable M-Bills). - Regular central bank balance sheet stress testing established. - Exchange rate and external anchor: - Currency peg to the U.S. dollar remains appropriate; peg provides credible anchor for monetary policy and inflation expectations. - With open capital account and increased synchronization with the U.S., CBUAE policy rate decisions should continue to align with the Federal Reserve's. - Authorities’ operational measures: - Authorities expect roll out of final repo and reverse repo facilities in early 2026. - Authorities highlighted: decrease in the money multiplier; monetary base cover of FX reserves increased to more than 112 percent; strong commitment to the exchange rate peg. ### Financial Sector Resilience and Supervisory Priorities - Macroprudential stance: - UAE financial sector remains resilient; systemic risks broadly contained by conservative macroprudential policies. - Implementation of CCyB of 0.50% with 12-month phase-in beginning 1 January 2025 and becoming effective 1 January 2026; adequacy of the 0.5 percent rate should be regularly re-assessed. - Specific macroprudential parameters: - LTV: 85 percent for first-time buyers, 65 percent for subsequent property and 50 percent for off-plan schemes for UAE nationals. - Downpayment requirements higher for expatriates and for properties above AED 5 million. - Maximum debt burden ratio: 60 percent of gross salary for UAE nationals, 50 percent for expatriates. - Maximum financing amount limited to 8 years of annual income for UAE nationals, 7 years for expatriates. - Maximum tenor for mortgages: 25 years. - Standards’ guiding threshold for Bank Real Estate Exposures: 30 percent of CRWA; should be continuously re-assessed. - Financial infrastructure and digitalization: - Progress on payment token services regulation and pilot phases of the Digital Dirham as part of the CBUAE FIT Program. - Initiatives should include careful assessment of risks to financial stability, monetary policy transmission, AML/CFT and cybersecurity. - Virtual assets and AML/CFT: - Emergence as global hub for virtual assets warrants continued monitoring, strengthened coordination among on-shore and off-shore regulators, and ensuring adequate regulatory capacity. - Cooperation agreements (e.g., SCA and VARA) exist; coordination should be expanded and aligned with international standards. - Improvements in AML/CFT framework welcome and should continue. ### Macro-structural Policies, Productivity, and AI - Diversification and productivity: - Policy objective: continue advancing non-oil diversification through investments in technology, infrastructure, and services, supported by structural reforms to boost competitiveness, innovation, and private sector growth. - Export diversification has improved; non-oil productivity has been a key driver of growth since early 2000s. - About one-third of non-hydrocarbon GDP gains attributable to total factor productivity growth linked to FDI, regulatory reforms, and technological upgrading. - AI strategy and risks: - UAE positioning as a global AI hub via large-scale investments and national initiatives. - Investments in education, up-skilling and re-skilling to create an AI ready labor force. - Staff note AI offers productivity opportunities but raises challenges related to labor market impacts, intensive energy demand, security, and systemic risks. - Recommendation: continue building on existing guidelines and regulatory frameworks and implement proactive initiatives. ### Climate Adaptation, Water Management, and Food Security - Vulnerabilities and capacities: - Country highly vulnerable to extreme heat, droughts, floods, and sea level rise. - Heavy reliance on food imports and high water-stress could be further strained by projected population growth. - UAE benefits from strong adaptive capacity and water use efficiency; climate risk considerations integrated into sectoral planning. - Fiscal risk management: - MoF has started developing guidelines and tools for integrating fiscal risks from climate change into the fiscal risk management framework. - Recommendation: expand AgTech and diversify food import sources to support food security. - Authorities’ commitment: investments in climate adaptation and resource management to ensure sustainable long-term growth. ### Statistics, Data Improvements, and Revisions - Data assessment and commitments: - Data broadly adequate for surveillance but continued efforts to improve data quality and availability recommended. - Authorities committed to meeting enhanced e-GDDS and working toward subscribing to SDDS. - Revisions and enhancements: - 2025 GDP revisions from 2010 to 2023 resulted in higher levels of total and non-hydrocarbon GDP; revisions aimed to align compilation methodologies across Emirates. - BOP data for 2023 and 2024 improved in line with STA TA and BPM6 methodologies. - Recommendation: continue efforts to provide consistent historical series, expand coverage, increase frequency, ensure timely dissemination, and improve IIP and external debt data. ### Staff Appraisal and Key Recommendations (Summary) - Macroeconomic performance: - UAE benefiting from sustained reform and modernization; growth strong driven by increased hydrocarbon production and robust non-hydrocarbon activity. - External position in 2024 broadly in line with medium-term fundamentals and desirable policies. - Fiscal recommendations: - Advance structural fiscal reforms, implement CIT to broaden tax base, strengthen fiscal coordination, include GREs and SWFs in public sector assessments, and monitor contingent liabilities. - Financial sector appraisal: - Sector resilient with risks broadly contained; continue close monitoring due to real estate developments, credit growth, digitalization, virtual assets expansion, and global/regional risks. - Data momentum: - Maintain momentum in data collection and dissemination improvements and harmonize data across emirates. ### Annex Highlights — Projections and Debt Dynamics (selected numeric entries) - Real GDP (percent): 2023: 4.3; 2024: 4.0; 2025: 4.8; 2026: 5.0; 2027: 4.7; 2028: 4.4; 2029: 4.3; 2030: 3.9. - CPI inflation (average): 2023: 1.6; 2024: 1.7; 2025: 1.6; 2026–2030: 2.0 each year (2030 listed as 2.0). - Average crude oil export price (USD per barrel): 2023: 82.37; 2024: 79.96; 2025: 69.56; 2026: 66.36; 2027: 66.26; 2028: 66.86; 2029: 67.56; 2030: 68.0. - Crude oil production (mil. barrels per day): 2023: 3.0; 2024: 2.9; 2025: 3.1; 2026: 3.4; 2027: 3.7; 2028: 3.8; 2029: 4.0; 2030: 4.1. - Public finances (percent of GDP): - Revenue: 2023: 28.5; 2024: 27.8; 2025: 28.4; 2026: 27.3. - Expenditures: 2023: 22.7; 2024: 21.4; 2025: 23.3; 2026: 22.5. - Net lending(+)/borrowing(-): 2023: 5.8; 2024: 6.4; 2025: 5.1; 2026: 4.7. - Adjusted nonhydrocarbon primary balance (percent of non-hydrocarbon GDP): 2023: -16.0; 2024: -17.1; 2025: -15.1; 2030: -10.8. - Fiscal breakeven oil price (USD per barrel): 2023: 54.0; 2024: 48.3; 2025: 45.7; 2026: 44.8; 2030: 45.9. - General government nominal levels (UAE dirhams, billions): - Total revenue: 2023: 546.6; 2024: 564.4; 2025: 592.9. - Expenditures (a+b): 2023: 435.0; 2024: 434.3; 2025: 486.7. - Net lending(+)/borrowing(-): 2023: 111.7; 2024: 130.1; 2025: 106.2. - Monetary aggregates (billions of AED): - Net foreign assets: 2023: 1,149; 2024: 1,448; 2025: 1,698. - Broad money (M2): 2023: 2,023; 2024: 2,318; 2025: 2,505. - Credit to private sector: 2023: 1,268; 2024: 1,379; 2025: 1,502. - Current account balance (billions of U.S. dollars): 2023: 68.6; 2024: 80.0; 2025: 75.5. - Central Bank gross foreign assets (billions of U.S. dollars): 2023: 189.5; 2024: 238.2; 2025: 280.0; months of next year's imports (net of re-exports): 2023: 7.2; 2024: 7.6; 2025 onward: ~8.2. - NIIP at end-2024: $984.1 billion (178.2 percent of GDP); expected end-2025: $1,083.9 billion (190.5 percent of GDP). *Source: IMF staff report — 1. UAE Resilience to Global Shocks (chapter content).* ### 1. UAE Resilience to Global Shocks ______________________________________________________________ 10 ### 1. UAE Resilience to Global Shocks ### Context - The UAE has demonstrated significant resilience to global uncertainty, regional conflicts, and lower and more volatile oil prices. - Supported by sustained efforts to promote economic diversification and exports, the UAE economy is expected to continue growing at the fastest rate among the GCC countries and well above the global average in 2025. - The direct impact of the US tariff is expected to be limited. - The UAE’s role as a global financial and trade hub increases exposure to spillovers from global shocks including shifts in global trade policy and financial conditions. - Large investments abroad, including a recently announced $1.4 trillion investment package in the US, together with strong FDI inflows are expected to spur medium-term growth. - Policy implication: policies should remain agile and accompanied by supportive reforms to ensure that ambitious investments translate into strong and sustainable growth. ### Recent Economic Developments - Growth and inflation: - GDP growth: 4.0 percent in 2024; 3.9 percent overall growth in 2025Q1. - Non-hydrocarbon activity growth: 5.3 percent in 2025Q1, led by manufacturing, construction, financial services, and real estate. - Oil production growth: 2.1 percent during January–July of 2025 (yoy). - Average inflation: 0.6 percent in 2025Q2 (down from 1.4 percent in 2025Q1). - Drivers of inflation: lower food prices and reduced transportation costs; offset by sustained increases in housing-related costs. - Fiscal sector: - Overall fiscal surplus: 6.4 percent of GDP in 2024. - Oil revenues grew by 16.7 percent yoy in 2024. - Non-hydrocarbon primary deficit: widened to 17.1 percent of non-hydrocarbon GDP in 2024. - Expenditure: slightly declined; increases in compensation of employees and purchases of goods and services were outweighed by lower subsidies and capital investments. - General government debt: about 35 percent of GDP in 2024. - External sector and reserves: - Current account surplus: 14.5 percent in 2024 (up from 13.1 percent in 2023) based on newly revised 2023 and 2024 BOP data. - Drivers: higher goods and services exports, especially non-hydrocarbon goods exports, and relatively slower import growth. - Non-hydrocarbon goods trade: deficit in both 2023 and 2024, compensated by higher-than-previously-estimated hydrocarbon exports. - Primary income: revised from a net outflow to a net inflow for 2023 and 2024. - Financial account: larger deficit in 2024 reflecting a substantial increase in outward FDI (ADQ’s $24 billion investment in Egypt) and continued reserve accumulation by CBUAE. - Foreign reserves: adequate at 7.6 months of imports. - Real effective exchange rate: depreciated in 2024 (IMF data: -0.3 percent yoy in December 2024; BIS data imply a slight appreciation of 1.4 percent yoy in December 2024). - Assessment: external position in 2024 broadly in line with level implied by medium-term fundamentals and desirable policies (Annex III). - Financial sector: - Regulatory ratios (2025Q2): - Tier 1 Capital Ratio: 16.0 percent. - Liquidity Coverage ratio: 153.2 percent. - Net Stable Funding Ratio: 113.7 percent. - Asset quality: - Aggregate gross non-performing loans ratio: 3.4 percent in 2025Q2. - Net NPL ratio: 1.5 percent in 2025Q2. - Private sector credit growth: 8.6 percent in 2024; 9.2 percent yoy in 2025Q2. - Deposit growth: double-digit, mainly driven by residents; strengthened bank funding and reduced loan-to-deposit ratio. - Liquidity: increasing, driven mainly by net capital inflows and partially absorbed by Monetary Bills (M-Bills) and Islamic Certificate of Deposit (ICD) issuance. - CBUAE policy rate: tracks the US Federal Reserve’s IORB; narrowing gap between overnight interbank rates and the Base Rate, reflecting excess liquidity and institutional features of the UAE banking sector (absence of a Shari’ah compliant deposit facility at the central bank until 2025Q2 contributed to the gap). - Market performance: UAE stock and bond markets have outperformed GCC and EM composites. - Real estate: - Dubai price changes (2020Q1 to 2025Q2, Dubai Land Department data): - Villas: +117.6 percent. - Apartments: +46.2 percent. - Commercial properties: +76.0 percent. - Abu Dhabi price changes (Abu Dhabi Real Estate Center Data): - Villa values: +31.4 percent. - Apartment values: +22.4 percent. - Housing transactions: predominantly non-mortgaged. - Abu Dhabi 2024: 60 percent of total transaction values non-mortgaged. - Dubai 2024: 83.4 percent of all residential transactions non-mortgaged. - Banks’ total exposure to residential and commercial real estate sector: 18.3 percent of total credit risk-weighted assets (CRWA) in 2025Q2. - Direct residential real estate lending: 4.6 percent of total gross loans in 2024. - Commercial real estate loans: 13.6 percent of total gross loans in 2024. - Analysis: Multivariate Filter analysis indicates real house prices currently above trend; cyclical component mainly correlated with non-oil GDP growth and liquidity. ### Outlook and Risks - Growth projections: - 2025 GDP: projected to expand by 4.8 percent. - Non-hydrocarbon growth: 4.6 percent in 2025. - Hydrocarbon GDP: projected 5.3 percent rebound in 2025 (driven by OPEC+ quota increase and reversal of oil production cuts). - 2026 GDP: projected to accelerate to 5.0 percent. - Hydrocarbon GDP contribution in 2026: 6.3 percent. - Non-hydrocarbon GDP in 2026: 4.6 percent. - Inflation: - Projected at 1.6 percent in 2025 and around 2 percent over the medium term. - Main drivers: housing-related costs (raising affordability issues); tradables remain subdued. - Trade policy shock impact: - Direct impact of recent U.S. tariff measures expected to be limited since affected exports to the U.S. account for less than 3 percent of total UAE exports. - PortWatch trade-volume proxy data point to some spillovers from global trade policy changes. - Ongoing expansion of comprehensive economic partnership agreements (CEPAs) expected to support external resilience and diversification. - Risk assessment (Annex IV): - Risks broadly balanced. - Downside risks: significantly weaker global growth, tighter financing conditions, reduced tourism, capital flows, and oil prices—potentially requiring use of fiscal and external buffers. - Real estate risk: potential for unexpected price correction if capital flows slow or investor sentiment shifts. - Medium-term downside risks: deeper geopolitical fragmentation, cybersecurity threats, and climate-related risks. - Upside factors: ongoing reforms, strong buffers, and large investment in infrastructure and AI. - Cybersecurity: high exposure noted; staff welcomes efforts by the Federal Cybersecurity Authority to address challenges. - Policy and shock scenarios: - In case of sizable adverse shocks (exceeding one standard deviation and sustained decline in oil prices), substantial fiscal space and financial buffers can be deployed to support non-oil activities, prioritizing growth-enhancing investments. - The CBUAE has adequate tools to provide liquidity and use macro-prudential toolkit to ensure financial stability. - Sensitivity analyses indicate only a sizable and sustained decline in oil prices would have a material external and fiscal impact. - Financial market resilience: - The impact of recent global shocks on UAE financial markets and capital flows has been relatively small compared to peers, reflecting investors’ perception of the UAE as an attractive investment destination. ### Box 1 — UAE Resilience to Global Shocks (selected findings) - Integration: - The UAE’s integration into the global economy through financial, investment, and trade linkages has increased synchronization with global business cycles; concordance indices, growth correlations, and trade openness with systemic economies have increased over time (Box 1. Figure 1). - Empirical shock responses (method and coverage): - Local-projections method used. - Financial variables and tourism: daily data January 2021 to July 2025; cumulative impacts over five days. - Trade variables: monthly data January 2018 - December 2024; three-month cumulative effects. - Real estate prices: January 2004 – December 2023; three-month cumulative effects. - Key sensitivities: - Shocks to global financial conditions and investor sentiment have moderate effects on bond and equity markets. - UAE financial markets generally outperformed EM benchmarks across most shocks and instruments. - Markets are most sensitive to the Volatility Index (VIX) and USD movements, with selective sensitivity to changes in US 10-year yields, oil prices, and oil price volatility (OVX). - Sovereign yield spreads: statistically significant responses to VIX, US 10-year yields, and oil price volatility. - Stock market returns: statistically significant responses to oil prices, USD, VIX, and OVX. - CDS spreads: higher sensitivity to VIX and OVX relative to other EMs. *Source: IMF staff report — 1. UAE Resilience to Global Shocks (chapter content).* ### Box 1. Figure 2. Impact on Financial Markets ### Box 1. Figure 2. Impact on Financial Markets ### Financial market impacts and empirical findings - Portfolio investment flows and real estate prices in the UAE are impacted by global shocks; responses vary in magnitude and timing. - Bond flows: - Impacts of VIX and USD movements on bond flows are statistically significant. - Bond flows respond to shifts in US Treasury yields. - Equity flows: - Equity flows are more sensitive to OVX. - Real estate equity prices react similarly to broader equity markets. - Housing prices: - Housing prices display statistically significant responses only to USD movements. - Trade and tourism: - Non-oil goods exports are sensitive to the Trade Policy Uncertainty (TPU) and OVX. - Impact from oil price movements on non-oil exports is statistically significant but small. - Imports are negatively affected by USD movements and volatility indices (OVX and VIX) and positively react to higher oil prices. - Tourism (daily arrivals) is resilient to various types of shocks. - Caveat: - Estimates do not fully capture the impact of the most recent trade policy changes; effects may be underestimated because those changes affected global uncertainty and volatility. *Sources: Haver, IMF Staff Calculations.* ### Authorities’ views on macro outlook and assets - Authorities broadly share staff’s assessment of the macroeconomic outlook but expect: - Somewhat higher overall GDP growth. - Slightly lower inflation. - They believe the UAE has the tools and buffers to navigate global uncertainty, pointing to: - Sound policies. - Significant investment in infrastructure. - Strong competitiveness supporting continued attraction of investment and talent. - On real estate: - Increase in real estate prices viewed as sign of durable demand supported by structural factors and international investors (population growth, golden visas, business reforms). - Past historical real estate price corrections characterized as gradual. ### Fiscal policy: stance, projections, and recommendations - Fiscal stance and projections: - Fiscal policy remains prudent, with robust fiscal surpluses supporting development and sustainability objectives. - Federal and larger emirates budgets for 2025-27 are based on conservative revenue assumptions and target broadly balanced budgets. - Overall fiscal surplus for the general government is expected to be around 5 percent of GDP in 2025 and 2026, moderating to 4.5 percent in the medium-term. - Non-hydrocarbon primary deficit is expected to gradually improve over the medium term, supported by implementation of the corporate income tax (CIT) and other indirect tax reforms. - Debt is expected to decline, remain sustainable and backed by large SWFs buffers. - Recommendations to strengthen fiscal framework: - Strengthen coordination among federal government, emirates, GREs, and SWFs to improve fiscal stance consistency and effective policymaking. - Continue progress on tax reform, revenue diversification, and medium-term fiscal planning. - Institutionalize operational-level fiscal coordination (enhance Fiscal Policy Coordination Council role). - Include GREs and SWFs in comprehensive public sector fiscal assessments given their prominence and off-budget capital expenditure through GREs and PPPs. - Regularly monitor and systematically assess contingent liabilities, including government guarantees, PPPs, and potential financial sector exposures. - Continue reforms focusing on developing non-hydrocarbon tax instruments while simplifying and broadening the current tax structure; strengthen tax administration through targeted procedural reforms and simplification. ### Monetary and exchange rate policy: developments and guidance - Dirham Monetary Framework (DMF) enhancements: - Introduction of new liquidity management facilities improves liquidity management and reduces the spread between DONIA and the Base Rate. - Introduction of the Shari’ah compliant overnight deposit facility (Overnight Murabaha Facility) in 2025Q2 significantly contributed to narrowing the DONIA-Base Rate spread. - Surplus liquidity should continue to be absorbed through M-Bills (including planned issuance of sustainable M-Bills). - Regular central bank balance sheet stress testing established. - Exchange rate and external anchor: - Currency peg to the U.S. dollar remains appropriate; peg provides credible anchor for monetary policy and inflation expectations. - With an open capital account and increased synchronization of business cycles with the U.S., CBUAE policy rate decisions should continue to align with the Federal Reserve's. - Authorities’ views and operational measures: - Authorities expect roll out of final repo and reverse repo facilities in early 2026 to support money market development and banks’ liquidity management and strengthen pass-through of monetary policy. - Authorities highlighted: - Decrease in the money multiplier amid sustained growth in credit and M2. - Increase of the monetary base cover of FX reserves to the record level of more than 112 percent. - Strong commitment to the exchange rate peg and that external position is broadly aligned with fundamentals and intergenerational equity objectives. ### Financial sector resilience and supervisory priorities - Systemic resilience and macroprudential policy: - UAE financial sector remains resilient; systemic risks broadly contained by conservative macroprudential policies. - Application of conservative loan-to-value (LTV) and debt-burden ratios contributes to risk mitigation. - Capital and liquidity ratios are in line with international standards. - Implementation of a countercyclical capital buffer (CCyB) is welcome given ample capital and robust credit growth; adequacy of the 0.5 percent rate should be regularly re-assessed. - Phase-in period for the requirement is 12 months, beginning on 1 January 2025, with the CCyB rate of 0.50% becoming effective on 1 January 2026. - Specific macroprudential parameters: - LTV: 85 percent for first-time buyers, 65 percent for subsequent property and 50 percent for off-plan schemes for UAE nationals. - Downpayment requirements are higher for expatriates and for properties above AED 5 million. - Maximum debt burden ratio: 60 percent of gross salary for UAE nationals, 50 percent for expatriates. - Maximum financing amount limited to 8 years of annual income for UAE nationals, 7 years for expatriates. - Maximum tenor for mortgages is set at 25 years. - Standards for Bank Real Estate Exposures’ guiding threshold of 30 percent of CRWA should be continuously re-assessed; consider risk weights or capital add-ons for banks above threshold. - Financial infrastructure and digitalization: - Progress on payment token services regulation and pilot phases of the Digital Dirham as part of the CBUAE Financial Infrastructure Transformation (FIT) Program. - Initiatives should include careful assessment of risks to financial stability, monetary policy transmission, AML/CFT and cybersecurity. - Real estate risks and policy coordination: - Real estate sector has benefited from domestic and global conditions, but persistent increases in prices warrant continued close monitoring. - Coordination of real estate policies between national and emirate-level authorities is warranted. - Deploy targeted support measures and supply-side policies to limit price growth and support affordability. - Assess and mitigate risks related to real estate tokenization, including through regulatory safeguards. - Virtual assets and AML/CFT: - UAE’s emergence as global hub for virtual assets warrants continued monitoring, strengthened coordination among on-shore and off-shore regulators, and ensuring adequate regulatory capacity. - Cooperation agreements noted (e.g., SCA and VARA) to align onshore oversight of virtual assets and VASPs; coordination should be expanded and aligned with international standards. - Improvements in AML/CFT framework welcome and should continue, focusing on: - Enhancing coordination among regulators. - Ensuring timely information sharing. - Promoting joint implementation of strategies. - Enhancing understanding of ML/TF risks and economic consequences of financial integrity issues. - Monitoring risks related to non-mortgaged transactions and enhancing corporate transparency. *Italic: Box 1. Figure 2. Impact on Financial Markets — Source: Haver, IMF Staff Calculations; content from the IMF staff report excerpt provided.* ### 27. The authorities agreed with staff’s assessment of contained systemic risks and the need ### 27–40: Macro-Structural Policies, Financial Stability, and Statistics ### Financial stability, macroprudential policies, and virtual assets - Authorities agreed with staff’s assessment of contained systemic risks and the need to remain vigilant against cross-border exposures. - Macroprudential policies described as conservative and continuously reassessed to remain appropriate. - Financial Stability Council progress: advisory technical committee and task forces on non-bank financial intermediation, digital innovation, and data development to strengthen regulatory cooperation and systemic risk monitoring. - Real estate risks: - Potential slowdown in the real estate market is likely to have limited impact on the banking sector given the low proportion of total real estate transactions financed by the UAE banks and the relatively low proportion of total bank lending related to real estate. - Buoyant real estate prices warrant continued close monitoring; sector exposed to risks of sudden change in investors’ sentiment. - Recommendation: continuously re-assess the guiding threshold in the Standards for Banks Real Estate Exposure and consider higher capital requirements for larger exposures. - Recommendation: national and emirate authorities should coordinate real estate policies and implement targeted measures and supply-side policies to support affordability. - Recommendation: carefully assess and mitigate risks related to real estate tokenization. - Virtual assets and digitalization: - Authorities noted existing regulations are in line with international standards and are proactively updated when needed. - Ongoing coordination among regulatory jurisdictions through formalized agreements, including to address AML/CFT risks. - CBUAE’s regulation aligns with international standards, including payment token services regulation. - Real estate tokenization is in pilot phase; risks being assessed prior to full implementation. Tokenization would allow for greater participation in real estate investment. - Monetary and liquidity management: - Finalizing the monetary framework, including deployment of remaining fine-tuning facilities and planned issuance of sustainable M-Bills, will strengthen management of surplus liquidity. ### Diversification, productivity, and AI - Policy objective: continue to advance non-oil diversification through investments in technology, infrastructure, and services, supported by structural reforms to boost competitiveness, innovation, and private sector growth. - Non-oil productivity and diversification findings: - Efforts to boost non-oil productivity and advance diversification have helped navigate global policy uncertainty and support medium-term growth. - Export diversification has improved in recent decades (Text Figure 8 and Figure 5; note: lower value for the export concentration index indicates higher diversification of exports; period 2006-2024 referenced). - Since the early 2000s, non-oil productivity has been a key driver of growth, with about one-third of non-hydrocarbon GDP gains attributable to total factor productivity growth linked to FDI, regulatory reforms, and technological upgrading (Text Figure 9, SIP Chapter 3). - Reforms and investments in innovation and renewables would support non-oil productivity and diversification objectives. - AI strategy and risks: - UAE rapidly positioning as a global AI hub via large-scale investments, strategic partnerships, and national initiatives. - Investments in education, up-skilling and re-skilling to create an AI ready labor force and support AI adoption across government for service provision. - Staff note AI offers productivity and innovation opportunities but raises challenges related to impact on the labor market, intensive energy demand, security and broader systemic risks. - Recommendation: continue building on existing guidelines and regulatory frameworks and implement proactive initiatives to stay ahead in the evolving AI landscape. - Authorities’ views: - Agreed on sustaining diversification through productivity gains in non-hydrocarbon sectors. - Highlighted expansion of CEPAs in diversifying trade and investor base. - Emphasized AI’s role in driving productivity and noted existing AI guidelines and regulations. - Reiterated commitment to addressing climate risks through investments in climate adaptation and resource management. ### Climate adaptation, water management, and food security - Recommendation: maintain strong policies on climate adaptation, water management, and food security (Annex VII). - Vulnerabilities and capacities: - Country highly vulnerable to extreme heat, droughts, floods, and sea level rise. - Heavy reliance on food imports and high water-stress could be further strained by projected population growth. - UAE benefits from strong adaptive capacity and water use efficiency; has integrated climate risk considerations into sectoral planning and management across agriculture, energy, and infrastructure. - Fiscal risk management: - With FAD support, MoF has started developing guidelines and tools for integrating fiscal risks from climate change into the fiscal risk management framework. - Recommendation: expand AgTech and diversify food import sources to further support food security. - Authorities’ commitment: reiterated investments in climate adaptation and resource management to ensure sustainable long-term growth. ### Statistics, data improvements, and revisions - Overall assessment: data broadly adequate for surveillance but continued efforts to improve data quality and availability recommended. - Commitment: authorities remain fully committed to meeting the enhanced general data dissemination systems (e-GDDS) and continue working toward subscribing to the special data dissemination standards (SDDS). - Areas needing enhancement: public sector data and real estate data coverage, transparency, and coordination at emirate- and federal-level; greater collection and dissemination of nonbank financial institutions (Annex V). - Specific revisions and recommendations: - GDP data revisions: - In 2025, authorities revised annual GDP data from 2010 to 2023, resulting in higher levels of total and non-hydrocarbon GDP. - Revisions aimed to align compilation methodologies across Emirates, including increased compliance of Northern Emirates and Dubai with SNA 2008. - Recommendation: local emirates should release consistent data, and revisions should also cover GDP by expenditure to ensure consistency across national accounts. - BOP data revisions: - Authorities made considerable improvements to the compilation of BOP data for 2023 and 2024, in line with STA TA and BPM6 methodologies, marked by improved granularity and consistency. - Recommendation: continue efforts to provide consistent historical series, expand coverage, increase frequency, ensure timely dissemination, and complement with improvements on the IIP and external debt data in line with the e-GDDS. - Authorities’ views: highlighted significant progress in improving external sector statistics in line with IMF CD and noted revisions to National Account Statistics are part of a broader plan to enhance accountability and develop a comprehensive national statistics platform. ### Staff appraisal and fiscal framework recommendations - Macroeconomic performance: - UAE reaping benefits of ambitious and sustained reform and modernization efforts. - Economic growth remains strong, driven by increased hydrocarbon production and robust non-hydrocarbon activity. - Significant infrastructure and transportation projects, investments in advanced technologies, governance and business environment improvements, and trade partnership expansion sustaining non-hydrocarbon growth momentum. - External position in 2024 assessed to be broadly in line with level implied by medium-term fundamentals and desirable policies. - Fiscal recommendations: - While public finances are strong, continued efforts to advance structural fiscal reforms would strengthen the medium-term fiscal framework and enhance policy effectiveness. - Implementation of the CIT is expected to further broaden the tax base and improve the non-hydrocarbon fiscal balances. - Strengthen fiscal policy coordination to ensure a consistent overall fiscal stance and more effective policymaking; Fiscal Policy Coordination Council could play a more active role in aligning fiscal frameworks and managing large adverse shocks. - Given significant role of GREs and SWFs, assessing fiscal position from a comprehensive public sector perspective remains important. - Regular monitoring and systematic assessment of contingent liabilities—such as government guarantees, PPPs, and potential financial sector exposures—would strengthen fiscal risk management. - Financial sector appraisal: - Financial sector resilient with risks broadly contained; banking sector strengthened with improvements in capital, liquidity, and asset quality indicators. - Continued close monitoring needed due to real estate developments, continued increase in credit growth, digitalization and expansion of virtual assets, and potential global and regional risks. - Creation of technical advisory committee and three task forces within the Financial Stability Council welcomed. - Data momentum: - Momentum in data collection and dissemination improvements should be maintained. - Authorities committed to closing existing data gaps by increasing capacity, implementing TA recommendations, and harmonizing data collection across emirates. - Further progress needed to ensure compliance with IMF's enhanced e-GDDS and advance toward higher standards. *Source: IMF staff report text (paragraphs 27–40).* ### 41. Staff proposes that the next Article IV consultation with the UAE follow the standard 12- ### 1areea2025001-source-pdf - 41. Staff proposes that the next Article IV consultation with the UAE follow the standard 12- ### Consultation timing - Staff proposes that the next Article IV consultation with the UAE follow the standard 12-month cycle. ### Recent economic developments (high-level) - Real GDP (Table 1): 2023: 4.3; 2024: 4.0; 2025: 4.8; 2026: 5.0; 2027: 4.7; 2028: 4.4; 2029: 4.3; 2030: 3.9. - Real hydrocarbon GDP (Table 1): 2023: -3.0; 2024: 1.0; 2025: 5.3; 2026: 6.3; 2027: 5.1; 2028: 3.9; 2029: 3.5; 2030: 1.9. - Real nonhydrocarbon GDP (Table 1): 2023: 7.0; 2024: 5.0; 2025: 4.6; 2026: 4.6; 2027: 4.6; 2028: 4.6; 2029: 4.5; 2030: 4.5. - CPI inflation (average, Table 1): 2023: 1.6; 2024: 1.7; 2025: 1.6; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0; 2030: 2.0. - Average crude oil export price (USD per barrel, Table 1): 2023: 82.37; 2024: 79.96; 2025: 69.56; 2026: 66.36; 2027: 66.26; 2028: 66.86; 2029: 67.56; 2030: 68.0. - Crude oil production (mil. barrels per day, Table 1): 2023: 3.0; 2024: 2.9; 2025: 3.1; 2026: 3.4; 2027: 3.7; 2028: 3.8; 2029: 4.0; 2030: 4.1. ### Fiscal developments and outlook - Public finances (Table 1, percent of GDP unless noted): - Revenue: 2023: 28.5; 2024: 27.8; 2025: 28.4; 2026: 27.3; 2027: 27.6; 2028: 28.1; 2029: 28.4; 2030: 28.5. - Taxes: 2023: 16.5; 2024: 18.2; 2025: 18.3; 2026: 17.4; 2027: 17.7; 2028: 18.2; 2029: 18.4; 2030: 18.5. - Expenditures: 2023: 22.7; 2024: 21.4; 2025: 23.3; 2026: 22.5; 2027: 22.9; 2028: 23.4; 2029: 23.8; 2030: 24.0. - Net lending(+)/borrowing(-) (revenue minus expenditures, percent of GDP): 2023: 5.8; 2024: 6.4; 2025: 5.1; 2026: 4.7; 2027: 4.7; 2028: 4.7; 2029: 4.6; 2030: 4.5. - Adjusted nonhydrocarbon primary balance (percent of non-hydrocarbon GDP, Table 3a): 2023: -16.0; 2024: -17.1; 2025: -15.1; 2026: -12.9; 2027: -11.9; 2028: -11.4; 2029: -11.3; 2030: -10.8. - Fiscal breakeven oil price (USD per barrel, Table 3a): 2023: 54.0; 2024: 48.3; 2025: 45.7; 2026: 44.8; 2027: 44.8; 2028: 45.2; 2029: 45.6; 2030: 45.9. - Gross general government debt (Table 1): 2023: 31.9; 2024: 34.9; 2025: 34.5; 2026: 32.4; 2027: 30.6; 2028: 29.0; 2029: 27.4; 2030: 26.9 (percent of GDP). - General government nominal/level figures (Table 3a, billions of UAE dirhams): - Total revenue 2023: 546.6; 2024: 564.4; 2025: 592.9; 2026: 601.9; 2027: 647.4; 2028: 701.7; 2029: 752.3; 2030: 800.2. - Expenditures (a+b) 2023: 435.0; 2024: 434.3; 2025: 486.7; 2026: 497.2; 2027: 536.9; 2028: 585.0; 2029: 630.3; 2030: 673.3. - Net lending(+)/borrowing(-) 2023: 111.7; 2024: 130.1; 2025: 106.2; 2026: 104.7; 2027: 110.5; 2028: 116.7; 2029: 122.0; 2030: 127.0. ### Monetary and financial sector (key aggregates and indicators) - Monetary aggregates (Table 4, billions of AED): - Net foreign assets: 2023: 1,149; 2024: 1,448; 2025: 1,698; 2026: 1,892; 2027: 2,077; 2028: 2,270; 2029: 2,449; 2030: 2,613. - Broad money (M2): 2023: 2,023; 2024: 2,318; 2025: 2,505; 2026: 2,713; 2027: 2,895; 2028: 3,088; 2029: 3,292; 2030: 3,509. - Credit to private sector (Table 4, of which credit to private sector 3/): 2023: 1,268; 2024: 1,379; 2025: 1,502; 2026: 1,611; 2027: 1,722; 2028: 1,841; 2029: 1,966; 2030: 2,100. - Financial soundness indicators (Table 5, selected): - Regulatory Capital to Risk-Weighted Assets: 2019: 17.7; 2020: 18.1; 2021: 17.1; 2022: 17.4; 2023: 17.9; 2024: 17.8. - Regulatory Tier 1 Capital to Risk-Weighted Assets: 2019: 16.5; 2020: 17.0; 2021: 16.0; 2022: 16.2; 2023: 16.6; 2024: 16.4. - Non-performing Loans to Total Gross Loans: 2019: 6.0; 2020: 7.6; 2021: 7.3; 2022: 6.6; 2023: 5.3; 2024: 4.1. - Provisions to Nonperforming Loans: 2019: 62.5; 2020: 58.7; 2021: 61.4; 2022: 60.9; 2023: 60.4; 2024: 58.8. - Return on Assets: 2019: 1.6; 2020: 0.7; 2021: 1.2; 2022: 1.5; 2023: 2.0; 2024: 2.2. - Liquidity Coverage Ratio: 2019: 140.2; 2020: 148.5; 2021: 140.3; 2022: 155.9; 2023: 160.9; 2024: 156.0. - Net Open Position in Foreign Exchange to Capital: 2019: -2.5; 2020: 26.1; 2021: 24.8; 2022: 34.6; 2023: 44.1; 2024: 50.0. ### Real estate sector (selected metrics) - Change in nominal residential prices (Percent change from end-2019 to 2024, Figure 4): Mumbai, Toronto, London, UAE, Abu Dhabi, Dubai are shown; the figure indicates UAE and emirate-level changes but exact numeric values for each city/emirate are presented graphically in the source figures. - Price-to-rent ratio and price-to-income ratio: indices shown normalized to historical averages (figures presented graphically in Figure 4). - Total sales transactions value by category (AED, Billion, Abu Dhabi, Figure 4): series shown for Emirati, Resident Foreign, Non-Resident Foreign (FDI) from 2019–2024 (values presented graphically in the source figures). ### External sector and balance of payments - Current account balance (Table 1 and Table 2, billions of U.S. dollars): 2023: 68.6; 2024: 80.0; 2025: 75.5; 2026: 73.7; 2027: 73.2; 2028: 72.7; 2029: 70.7; 2030: 71.0. - Current account balance (percent of GDP, Table 1 and Table 2): 2023: 13.1; 2024: 14.5; 2025: 13.3; 2026: 12.3; 2027: 11.4; 2028: 10.7; 2029: 9.8; 2030: 9.3. - Exports and re-exports of goods (Table 1, billions of U.S. dollars): 2023: 411; 2024: 466; 2025: 518.5; 2026: 558.0; 2027: 604.4; 2028: 658.7; 2029: 713.0; 2030: 758.3. - Hydrocarbon exports (Table 2): 2023: 124.5; 2024: 122.4; 2025: 105.5; 2026: 105.2; 2027: 109.6; 2028: 114.3; 2029: 119.0; 2030: 123.3. - Non-hydrocarbon exports excluding re-exports (Table 2): 2023: 108.0; 2024: 142.1; 2025: 201.9; 2026: 222.7; 2027: 241.9; 2028: 266.6; 2029: 289.8; 2030: 309.2. - Re-exports (Table 2): 2023: 179.4; 2024: 202.0; 2025: 211.1; 2026: 230.0; 2027: 252.8; 2028: 277.8; 2029: 304.2; 2030: 325.8. - Imports of goods (f.o.b., Table 2, billions of U.S. dollars): 2023: -352.6; 2024: -400.2; 2025: -464.6; 2026: -508.9; 2027: -559.3; 2028: -617.7; 2029: -677.1; 2030: -723.6. - Services, net (Table 2, billions of U.S. dollars): 2023: 56.7; 2024: 64.7; 2025: 75.2; 2026: 80.9; 2027: 87.9; 2028: 95.5; 2029: 102.6; 2030: 107.7. - Central Bank gross foreign assets (Table 2, billions of U.S. dollars): 2023: 189.5; 2024: 238.2; 2025: 280.0; 2026: 304.9; 2027: 334.0; 2028: 363.5; 2029: 387.8; 2030: 406.0. - In months of next year's imports of goods & services, net of re-exports (Table 2): 2023: 7.2; 2024: 7.6; 2025: 8.2; 2026: 8.2; 2027: 8.2; 2028: 8.2; 2029: 8.2; 2030: 8.2. ### Key projection envelopes and cross-cutting observations - Growth: nonhydrocarbon activity remains the primary driver of positive GDP growth through 2030 with sustained rates around 4.5–5.0 percent in the projection horizon. - External resilience: large central bank gross foreign assets projected to rise from 189.5 (2023) to 406.0 (2030) billion U.S. dollars, maintaining reserves at about 7.2–8.2 months of imports (net of re-exports). - Fiscal cushion and vulnerabilities: - Fiscal breakeven oil price falls from 54.0 (2023) to the mid-40s in projections (2025–2030), supporting fiscal room when oil prices remain above these levels. - Adjusted nonhydrocarbon primary balances remain significantly negative across the projection period (e.g., -16.0 in 2023; -10.8 in 2030, percent of non-hydrocarbon GDP), indicating sustained fiscal reliance on hydrocarbon-related revenue. - Financial sector soundness: capitalization (Regulatory Capital to RWA ~17–18 percent) and liquidity metrics (Liquidity Coverage Ratio ~140–160 percent; Net Stable Funding Ratio ~107–114 percent) remain robust through 2024. *Source: IMF staff report figures and tables, UNITED ARAB EMIRATES (selected pages and tables from the provided content).* ### Annex I. Implementation of Past Fund Article IV Advice ### Annex I. Implementation of Past Fund Article IV Advice ### Fiscal: implementation status and recommendations - Recommendation: The development of harmonized MTFF and sovereign asset-liability management (SALM) frameworks. - Status: The Federal Government and each Emirate have been advancing internal MTFFs. Efforts to harmonize the MTFFs and develop a SALM framework should continue. - Recommendation: Proceed with CIT implementation supported by phasing-out of opaque business fee structures. Limit incentives and avoid discretionary elements in their allocation, especially profit-based incentives. - Status: In progress. The CIT was introduced on June 1st, 2023, with proceeds expected to flow to the budget in 2026. The study of the economic impacts of fiscal incentives and exemptions planned to be finalized after full CIT implementation. - Recommendation: Finalize review of welfare benefits to ensure effective targeting and remove remaining price controls. - Status: In progress. - Recommendation: Enhance the capacity of the Federal Tax Authority (FTA) to enforce tax compliance and ensure accurate reporting, such as through greater digitalization. - Status: In progress. Authorities continue to improve FTA capacity, streamline CIT processes and enhance digitalization, including incorporating AI in tax filing and accounting. - Recommendation: Compilation and dissemination of central and general government debt statistics, contingent liabilities (including PPPs), and the overall public sector balance sheets. - Status: In progress. STA provided TA support on GFS and public sector debt statistics. Information on public debt, guarantees, PPPs, SWFs, GREs’ and public sector balance sheets is limited. - Recommendation: Developing and greening the fiscal frameworks and fostering sustainable finance. - Status: In progress. With FAD support and the use of FAD analytical tools, the MoF has started developing guidelines for integrating fiscal risks from climate change into the fiscal risk management framework. ### Monetary and financial sector: implementation status and actions - Recommendation: Continue close monitoring of financial stability risks, including finalization and implementation of the coordinated framework. - Status: In progress. CBUAE issued credit risk management standards and guidelines. Implemented a positive cycle-neutral countercyclical capital buffer (CCyB) of 50 basis points, effective from January 2026. Reassessed the Domestic Systemically Important Banks (D-SIB) framework, designating an additional bank as a D-SIB and increasing the capital surcharge for another existing D-SIB, effective from June 2026. - Recommendation: Continue efforts to strengthen the macro-prudential and regulatory frameworks, ensure adequacy of macroprudential tools. - Status: Implemented (Standards for the Bank’s Real Estate Exposures). In progress (reviewing the loan-to-value (LTV) framework and other borrower-based measures to evaluate their effectiveness under current market conditions). - Recommendation: Fully implement the DMF, in line with the IMF technical assistance recommendations. Reduce surplus liquidity in line with targets. - Status: Expected to be fully implemented in early 2026, with some facilities undergoing testing before the market roll out. Absorbed higher capital inflows through higher issuance of Monetary Bills. - Recommendation: Develop effective supervision of digital innovation and Fintech activities. Strengthen regulatory capacity to effectively address risks in the evolving virtual assets ecosystem. - Status: The different regulatory jurisdictions have improved their coordination and collaboration through cooperation agreements and memoranda of understanding. They are also closely coordinating and exchanging information with CBUAE. - Recommendation: Continue strengthening the AML/CFT regime, including regarding virtual assets and in the real estate sector. - Status: Continued strengthening of the AML/CFT framework effectiveness ahead of the FATF 2026 Mutual Evaluation. - Recommendation: Continue to advance sustainable finance and enhance the resilience of the financial sector to climate-related risks. - Status: Adopted sustainability-related disclosure principles and Climate Risk Management Regulation, and integrated transition and physical-risk stress tests in the supervisory toolkit. ### Structural reforms and business environment - Recommendation: Ensure integration of strategies and policies at different levels of government with efforts to further advance CEPAs, the AI and Digital Economy Strategies, and Green Strategy. - Status: In progress. Reform implementation in line with the AI, Green Economy, and Digital Economy Strategy 2030. - Recommendation: Continue to improve the business environment, increase SME access to finance, reduce gender gaps, improve property rights. - Status: Implemented. SME Law (2023). Support to SMEs by MoF via Federal Supplier Register, Digital Procurement Platform, and Incentive Packages for SMEs. The CBUAE’s SME Customer Market Conduct Regulation is expected to be published by end 2025. In progress: Increase in Emirati female labor force participation via Nafis. ### Statistics and data dissemination - Recommendation: Further efforts are needed to increase the timeliness, periodicity, and full coverage of data reporting, including of national accounts, fiscal sector, and external sector statistics. - Status: In progress, see Annex V. - Recommendation: Continue working toward subscribing to the special data dissemination standards (SDDS). - Status: In progress. ### Sovereign risk and debt sustainability — overall assessment - Overall risk of sovereign stress: Low. - Near term: Low. - Medium term: Low. - Long term: Low. - Commentary points: - The overall risk of sovereign stress is low, reflecting a low level of vulnerability in the near, medium, and long term. - Long-term risks are low supported by the UAE’s large financial assets and net worth. The UAE fossil fuel reserves (oil and gas) in the ground are large. The UAE has also accelerated investments into the renewable energy sources and the share of renewables in the overall energy mix is increasing in line with the UAE Energy Strategy 2050. - Medium-term risks are assessed as low consistent with the mechanical signal and activated stress test of commodity prices. The debt level is relatively low and the UAE SWFs hold substantial financial assets. - Commentary: The UAE is at a low overall risk of sovereign stress and debt is sustainable. Growth is expected to remain strong. The development of harmonized medium-term fiscal (MTF) and sovereign asset-liability management (SALM) frameworks will strengthen efforts to enhance fiscal policy calibration through better coverage of fiscal operations, and enhanced coordination among federal government and local emirates. The UAE fiscal sustainability will be enhanced further by fiscal structural reforms, the recent implementation of CIT reform that will bolster nonhydrocarbon tax collection, enhanced tax compliance and a sound debt management strategy that deepens capital markets. Continued monitoring of fiscal risks is necessary. Lack of complete coverage of public sector data, including detailed information on gross and net public debt and the public sector balance sheet hinders a comprehensive assessment of UAE fiscal space and sustainability, including the analysis of government contingent liabilities and risks. ### Debt coverage, disclosures, and data limitations - Fiscal data coverage: The fiscal data cover the general government. The data cover federal government units, General Pension and Social Security Authority, Abu Dhabi Pension Fund, and entities of the seven emirates (state government). - Notes on data volatility and gaps: - Fluctuations in data coverage are due to changes in government structure. For example, in 2023, the federal government had 20 ministries and 32 extra-budgetary units. Yearly changes in emirate-level coverage and transfers to the budget contribute to data volatility. - In 2020 the coverage of the social security funds sector extended to include Abu Dhabi Pension Fund. - The information on debt breakdown by currency, holder, governing law, instrument, and maturity is only partially available. The information on GREs, SWFs, and PPPs is largely unavailable. ### Public debt structure and projections (key figures from baseline DSA) - Public debt (percent of GDP): - 2024: 34.9 - 2025: 34.3 - 2026: 33.1 - 2027: 31.7 - 2028: 30.3 - 2029: 28.9 - 2030: 26.6 - 2031: 24.2 - 2032: 21.7 - 2033: 19.0 - 2034: 16.3 - 2035: 13.6 - Change in public debt (percent of GDP): - 2024: 3.0 - 2025: -0.7 - 2026: -1.2 - 2027: -1.4 - 2028: -1.4 - 2029: -1.4 - 2030: -2.3 - 2031: -2.4 - 2032: -2.5 - 2033: -2.6 - 2034: -2.7 - 2035: -2.8 - Contribution of identified flows (percent of GDP): - 2024: -3.6 - 2025: -1.4 - 2026: -1.5 - 2027: -1.5 - 2028: -1.4 - 2029: -1.4 - 2030: -2.2 - 2031: -2.4 - 2032: -2.5 - 2033: -2.6 - 2034: -2.7 - 2035: -2.8 - Primary deficit (percent of GDP): - 2024: -7.0 - 2025: -5.1 - 2026: -4.7 - 2027: -4.7 - 2028: -4.7 - 2029: -4.6 - 2030: -4.6 - 2031: -4.6 - 2032: -4.6 - 2033: -4.6 - 2034: -4.6 - 2035: -4.6 - Noninterest revenues (percent of GDP): - 2024: 27.8 - 2025: 28.4 - 2026: 27.3 - 2027: 27.6 - 2028: 28.1 - 2029: 28.4 - 2030: 28.4 - 2031: 28.4 - 2032: 28.4 - 2033: 28.4 - 2034: 28.4 - 2035: 28.4 - Noninterest expenditures (percent of GDP): - 2024: 20.9 - 2025: 23.3 - 2026: 22.5 - 2027: 22.9 - 2028: 23.4 - 2029: 23.8 - 2030: 23.8 - 2031: 23.8 - 2032: 23.8 - 2033: 23.8 - 2034: 23.8 - 2035: 23.8 - Automatic debt dynamics (percent of GDP): - 2024: -1.2 - 2025: -1.4 - 2026: -1.7 - 2027: -1.6 - 2028: -1.5 - 2029: -1.3 - 2030: -1.3 - 2031: -1.2 - 2032: -1.0 - 2033: -0.9 - 2034: -0.7 - 2035: -0.6 - Other identified flows (percent of GDP): - 2024: 4.6 - 2025: 5.1 - 2026: 4.9 - 2027: 4.8 - 2028: 4.7 - 2029: 4.5 - 2030: 3.6 - 2031: 3.4 - 2032: 3.1 - 2033: 2.9 - 2034: 2.6 - 2035: 2.4 - Contribution of residual (percent of GDP): - 2024: 6.6 - 2025: 0.8 - 2026: 0.3 - 2027: 0.1 - 2028–2035: 0.0 each year - Gross financing needs (percent of GDP): - 2024: -1.4 - 2025: -1.0 - 2026: 0.8 - 2027: 1.2 - 2028: 1.4 - 2029: 2.4 - 2030: 1.3 - 2031: 1.0 - 2032: 0.8 - 2033: 0.2 - 2034: -0.2 - 2035: -0.7 - Of which: debt service (percent of GDP): - 2024: 5.5 - 2025: 4.0 - 2026: 5.6 - 2027: 5.9 - 2028: 6.0 - 2029: 7.0 - 2030: 5.9 - 2031: 5.6 - 2032: 5.4 - 2033: 4.8 - 2034: 4.4 - 2035: 3.9 - Debt service by currency (percent of GDP): - Local currency: 2024: 3.5; 2025: 3.0; 2026: 4.5; 2027: 4.5; 2028: 4.9; 2029: 5.5; 2030: 4.3; 2031: 4.1; 2032: 3.9; 2033: 3.4; 2034: 3.0; 2035: 2.6 - Foreign currency: 2024: 2.0; 2025: 1.0; 2026: 1.1; 2027: 1.4; 2028: 1.1; 2029: 1.5; 2030: 1.5; 2031: 1.5; 2032: 1.5; 2033: 1.5; 2034: 1.4; 2035: 1.4 ### Macroeconomic memos (baseline assumptions and projections) - Real GDP growth (percent): - 2024: 4.0 - 2025: 4.8 - 2026: 5.0 - 2027: 4.7 - 2028: 4.4 - 2029: 4.3 - 2030–2035: 4.3 each year - Inflation (GDP deflator; percent): - 2024: 1.6 - 2025: -1.6 - 2026: 0.6 - 2027: 1.6 - 2028: 1.8 - 2029: 1.9 - 2030–2035: 1.9 each year - Nominal GDP growth (percent): - 2024: 5.7 - 2025: 3.0 - 2026: 5.6 - 2027: 6.4 - 2028: 6.4 - 2029: 6.2 - 2030–2035: 6.3 each year - Effective interest rate (percent): - 2024: 1.8 - 2025: 1.1 - 2026: 1.4 - 2027: 1.5 - 2028: 1.5 - 2029: 1.5 - 2030: 1.5 - 2031: 1.6 - 2032: 1.7 - 2033: 1.9 - 2034: 2.1 - 2035: 2.4 ### Realism and risks of baseline assumptions - Commentary: The realism analysis doesn’t point to any major concerns and the adjustment will be driven by the tax policy reforms implementation in line with the authorities’ strategy and supported by other structural reforms that will boost GDP growth. - Notes on realism assessment elements included in the source: Forecast track record, public debt to GDP, primary deficit, r - g, exchange rate depreciation percentiles, historical output gap revisions, bond issuances and implied spread (Laubach rule), and distribution of possible fiscal adjustments and growth multipliers. (Detailed charts and percentile ranks reported in the source.) *Source: Fund staff.* ### Annex II. Table 6. United Arab Emirates : Medium-term Risk Assessment ### Annex II. Table 6. United Arab Emirates : Medium-term Risk Assessment ### Medium-term risk assessment: summary and final assessment - Risk signal (mechanical): Moderate (Debt fanchart index (DFI) = 1.2). - GFN financeability index (GFI) = 4.6 → Risk signal: Low. - Final assessment: Medium-term risks are assessed as low, consistent with the mechanical "low" signal. - Prob. of missed crisis, 2025-2030, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 58.0 pct. - Commentary: Gross financing needs under the stress scenario are small. Large sovereign net financial assets mitigate risks. ### Debt and financing metrics (Debt fanchart / Gross financing needs) - Debt fanchart width: 75.5 1.1 (percent of GDP) [as shown]. - Probability of debt non-stabilization (percent): 0.9 0.0. - Terminal debt-to-GDP institutions index: x6.5 0.1. - Debt fanchart index (DFI): 1.2. - Gross financing needs (GFN) — Average baseline GFN: 1.0 0.3 (percent of GDP). - Initial banks' claims on the general government (pct bank assets): 7.9 2.6. - Change in banks' claims in stress (pct banks' assets): 5.1 1.7. - GFN financeability index (GFI): 4.6. - Risk signal (GFN): Low. ### Medium-term risk analysis (composite) - Medium-term index components and values: - Debt fanchart index: 1.2 - GFN financeability index: 4.6 - Medium-term index: Low risk (index number and chart indicate "Low risk" zone). ### External sector assessment — overall and key indicators - Overall Assessment: The UAE’s external position in 2024 was broadly in line with the level implied by medium-term fundamentals and desirable policies, but assessment subject to uncertainty due to data revisions and measurement challenges. The consumption module (intergenerational equity) is a better benchmark. Assessment uses holistic view including non-oil current account and non-oil fiscal deficits in 2024. External balance sheet remains robust, backed by central bank reserves and sizable sovereign wealth fund assets. Starting in 2025, current account balance projected to decline as oil prices stabilize and imports increase. Authorities continue efforts to enhance external sector statistics. - Potential policy responses: Continue fiscal reforms within a transparent medium-term fiscal framework to safeguard fiscal sustainability coupled with structural reforms to diversify the economy and support private investment. Key external balance-sheet and current account figures - Net International Investment Position (NIIP): - NIIP at end-2024: $984.1 billion (178.2 percent of GDP). - NIIP expected end-2025: $1,083.9 billion (190.5 percent of GDP). - 2024 (% GDP) breakdown: - NIIP: 178.2 - Gross Assets: 271.6 - Debt Assets: 43.1 - Gross Liabilities: 93.4 - Debt Liabilities: 93.4 - Current account: - Current account surplus in 2024: 14.5 percent of GDP (up from 13.1 percent of GDP in 2023). - Non-hydrocarbon goods trade deficit in 2024: 5.7 percent of GDP. - Non-hydrocarbon current account deficit in 2024: 3.2 percent of GDP. - Current account surplus expected in 2025: 13.3 percent of GDP. - Projection: CA balance projected to decline over the medium term as oil prices stabilize and imports increase, with non-oil exports expected to rise as diversification progresses. - Oil price assumption: - Average oil export price assumed: $79.97 a barrel in 2024 ($82.3 a barrel in 2023). Assessment of CA norms and gaps - Consumption Allocation Rules results: - CA gap under constant real per capita annuity allocation rules: -0.7 percent of GDP. - CA gap under constant real annuity allocation rule: 5.9 percent of GDP. - CA-regression (EBA-lite) approach (supplemented with staff judgement) estimates a CA gap of 0.7 percent of GDP. - Staff overall assessment: CA gap of about -0.7 percent of GDP, in line with the commodity consumption module. - Note: Estimated norms are sensitive to model parameters (GDP growth, interest rate, population growth). Staff adjusted the EBA-lite explanatory variable “output per worker” to account for large share of high-skilled non-citizen workers and flexible labor market, and recent GDP revisions. Assessment subject to uncertainty due to data revisions and IIP data gaps. ### Exchange rate and reserves - Exchange rate regime: Dirham pegged to the US dollar at a rate of 3.6725 since November 1997. - Effective exchange rate movements (Dec 2023–2024): - REER: depreciated by 0.3 percent. - NEER: appreciated by 3.0 percent. - BIS data indicate a slight appreciation in the REER of 1.4 percent in 2024. - Assessment: Based on staff CA gap and elasticity of 0.66, staff assesses the REER to be broadly in line with levels implied by medium-term fundamentals and desirable policies. - Gross FX reserves: - End-2024: $238.2 billion (43.1 percent of GDP, 7.6 months of imports and 109 percent of the Fund’s reserve adequacy metric). - 2023: $189.5 billion (36.3 percent of GDP and 7.2 months of imports). - From 2024 onward, reserves expected to remain stable at 8.2 months of imports as non-oil exports and imports pick up. - Assessment: Reserves are adequate for precautionary purposes (measured by the Fund’s metrics) and serve as buffers and savings for future generations. ### Capital and financial account - 2024 financial account: larger deficit vs. revised 2023, reflecting substantial increase in outward FDI (driven by ADQ’s $24 billion investment in Egypt) and CBUAE reserve accumulation. - Assessment: UAE has an open capital account. Large central bank reserves and SWFs’ assets limit risks and vulnerabilities from capital flows. Data gaps on GREs and SWFs activities complicate financial account analysis. ### Policy recommendations related to external and macro-financial stability - Continue to pursue fiscal reforms within a transparent medium-term fiscal framework to safeguard fiscal sustainability. - Pursue structural reforms to diversify the economy and support private investment. - Continue to save windfall revenue and avoid pro-cyclical fiscal policy; deploy buffers when needed. - Continue setting monetary policy in line with the Fed, deploy the DMF, and closely monitor domestic liquidity conditions. - Strengthen trade diversification through trade agreements (including CEPAs) and use fiscal space to support non-hydrocarbon sectors as needed. - Maintain monetary and financial stability through prudent oversight, adjusting central bank tools and macroprudential policies as needed. - Improve external sector statistics, including development of IIP reporting (may begin to report in 2027 with IMF technical assistance). ### Risk Assessment Matrix — selected risks, likelihoods, impacts, and policy responses - Intensification of regional conflicts - Likelihood: High - Expected impact: Low / Medium - Policy response: Leverage trade/logistics infrastructure to diversify routes, deepen regional/bilateral trade ties, use fiscal space to support non-hydrocarbon sectors, maintain monetary and financial stability, adjust macroprudential policies as needed. - Escalating trade measures and prolonged uncertainty - Likelihood: High - Expected impact: Medium - Policy response: Strengthen trade diversification, use fiscal space to support non-hydrocarbon sectors, maintain monetary and financial stability, adjust policies as needed. - Commodity price volatility - Likelihood: High - Expected impact: High - Policy response: Save windfall revenue, pursue fiscal and structural reforms, avoid pro-cyclical fiscal policy, continue monetary policy alignment with the Fed, deployment of the DMF, monitor liquidity, continue structural reforms for diversification. - Financial market volatility and correction - Likelihood: High - Expected impact: Low / Medium - Policy response: Close monitoring of financial system risks, CBUAE to provide liquidity as needed, use macroprudential toolkit, deploy fiscal buffers if needed, regulate and supervise virtual assets carefully. - Cyberthreats - Likelihood: High - Expected impact: Medium / High - Policy response: Integrate cybersecurity risk analysis into CBUAE and free-zone frameworks, enhance cyber risk mitigation and supervision, pace AI adoption consistent with capacity and regulatory frameworks. - Climate change and natural disasters - Likelihood: Medium - Expected impact: Low / Medium - Policy response: Scale up adaptation and climate-resilient infrastructure investment, incorporate climate risks in prudential policies and fiscal risk reporting. ### Real estate sector developments — Dubai and Abu Dhabi (selected indicators) - Dubai (2024) - Aggregate residential property prices grew by 13.3 percent in 2024 (compared to 10.1 percent in 2023). - Villas: +22.8 percent in 2024. - Apartments: +9.1 percent in 2024. - Commercial real estate prices: +15.8 percent in 2024 (from 14.3 percent in 2023). - Projected housing supply increase by 2027 could help balance demand pressures (DXBInteract: planned supply expected to increase by 83k units in 2026 and 99k units in 2027; delivered units to total planned units ratio may be well below 100 percent — e.g., for 2025 it was equal to 62 percent on October 31st 2025). - Abu Dhabi (2024) - Apartment sales prices grew by 9.9 percent in 2024. - Villa sales prices increased by 7.8 percent in 2024. - Off-plan projects accounted for 74 percent of total in 2024. - Market predominantly investor-driven: 81 percent of units occupied by renters. - Lease price increases in 2024: apartments +11 percent; villas +5 percent. - Rental values and volumes annual growth in 2024: 8 percent and 5 percent respectively. - Buyer composition (2024 vs 2019): UAE nationals 35 percent of total sales values (from 62 percent in 2019); foreign residents 48 percent (from 34 percent in 2019); buyers residing outside the UAE 16 percent (from 4 percent in 2019). - Assessment: Dubai growth driven by high-end international demand and villas; Abu Dhabi strong investor-driven demand with supply expected to be outpaced by demand, supporting rental growth. *Source: IMF staff estimates and projections.* ### Annex VI. Figure 1. Real Estate ### Annex VI. Figure 1. Real Estate ### Abu Dhabi residential supply and demand - ADREC projects that future residential supply in Abu Dhabi will increase by an average annual growth rate of 4.5 percent until 2028. - Historical demand growth in Abu Dhabi between 2022 and 2024 has been 6 percent. ### Role of real estate in the non-oil economy and bank exposures - Real estate and construction activities accounted for 19.5 percent of real non-oil GDP in 2024 (stable compared to the share in 2019). - Following the introduction of the CBUAE Standards for Bank Real Estate Exposures, banks’ comprehensive exposures have gradually declined to 18.3 percent of total credit risk-weighted assets (CRWA) in 2025Q2. - Direct residential real estate lending remains low at 4.6 percent of total gross loans in 2024. - Commercial real estate loans reached 13.6 percent of total gross loans in 2024. - Banks’ exposures include mortgages, investments in real estate securities, direct investment in real estate and off-balance sheet exposures such as guarantees, letters of credit, acceptances, or commitments. ### Real estate firms’ equity performance - Stock prices for major real estate firms continued to increase and stand above their January 2024 levels. - Emaar Development’s equity price increased by around 100 percent (relative to Jan-24 = 100). - Aldar Properties’ equity price increased by around 70 percent (relative to Jan-24 = 100). - Equity price series cited include Emaar Development (UAE), Tecom Group PJSC, Deyaar Development, RAK Properties, Aldar Properties (Index, 2024 Jan = 100). - Source cited for equity prices: Bloomberg. ### Housing prices relative to trend and drivers (multivariate filter analysis) - Multivariate filter analysis indicates that real house prices are currently above trend. - The cyclical component of deviations from trend is mainly correlated with: - Non-hydrocarbon GDP growth. - Liquidity proxied by M2. - The significant contribution of M2 (orthogonalized with respect to non-hydrocarbon GDP growth and oil price growth) may be associated with the relationship between housing demand and the large increase in system liquidity partly driven by capital inflows. - Results are robust to the use of both BIS data for UAE aggregate house prices and DLD data for Dubai house prices. - All explanatory variables are in deviations from their respective historical averages (demeaned). ### Sensitivity of housing prices to external uncertainty and currency movements - Econometric analysis using local projection methods finds that UAE real housing prices are not significantly affected by: - Volatility Index (VIX). - Trade Policy Uncertainty. - Geopolitical Risk. - Oil Price Volatility. - An appreciation of the dollar by one percent is associated with a decline in real house prices of 0.5 percent after five months in the UAE. *Sources: Dubai Land Department, Abu Dhabi Real Estate Center; Bloomberg; BIS; DLD; Haver; IMF Staff Calculations.* ### 6.4 percent of GDP in 2024, as oil revenues grew by 16.7 percent. With revenues expected to ### UAE: Fiscal, Monetary, Financial Sector, Macro-structural Policies and Statistics ### Fiscal Policy - Overall fiscal position and prospects: - Fiscal surplus for the general government was 6.4 percent of GDP in 2024, as oil revenues grew by 16.7 percent. - The overall fiscal surplus for the general government is expected to be around 5 percent of GDP in 2025 and 2026. - General government debt was 35 percent of GDP in 2024 and is expected to maintain a declining path over the medium term. - Revenue diversification and tax policy: - Diversification of revenue sources remains a key priority. - Collection of corporate income tax of 9 percent and a new top up tax to 15 percent on the profits of large multinational companies are expected to strengthen non-hydrocarbon revenues and improve non-hydrocarbon primary deficits over the medium term. - Institutional coordination: - Authorities concur on the importance of enhancing fiscal policy coordination between the federal and emirate level to strengthen countercyclical macroeconomic management. - Authorities note that coordination mechanisms have evolved and will continue, taking into consideration the federal structure and the autonomy of each emirate. - Authorities recognize staff recommendations on incorporating data on SWFs and GREs into fiscal assessment but note these entities fall under independent fiscal authority of local emirates. ### Monetary Policy - Exchange rate regime and policy stance: - UAE dirham’s peg to the US dollar continues to provide a credible policy anchor and has contributed to stabilizing inflation. - In line with the peg, the CBUAE continues to align its monetary policy stance with the US Federal Reserve’s, with 50 basis points cut in the Base Rate so far in 2025. - Dirham Monetary Framework (DMF) and liquidity management: - Enhancements to the DMF have strengthened CBUAE’s liquidity management capacity and helped narrow the DONIA-Base Rate spread. - CBUAE is finalizing remaining policies under the DMF and rolling out required liquidity management facilities. - In March 2025 the CBUAE introduced the Overnight Murabaha Facility — a Shariah compliant liquidity management tool to ensure parity between conventional and Shariah compliant financial institutions. - The CBUAE expects the roll out of the final repo and reverse repo facilities in early 2026. - CBUAE has commenced development of the Sustainable M-Bills program, to develop a Shariah-compliant and sustainable-equivalent to existing M-Bills. - Monetary aggregates and reserve coverage: - Solid economic growth and relatively stable domestic financial conditions support net capital inflows, which CBUAE has absorbed through higher issuance of M-Bills and ICDs. - Authorities highlight a continued decrease in the money multiplier, amid sustained growth in credit and M2. - Monetary base cover of FX reserves increased to the record level of more than 112 percent. ### Financial Sector - Macroprudential stance and real estate exposure: - Macroprudential policies are conservative and regularly reviewed to address structural and cyclical risks. - Standards for Bank Real Estate Exposures helped limit speculative activities and contain financial stability risks. - Banks’ total exposure to residential and commercial real estate (including mortgage, investment and development loans, off-balance sheet exposures, and investments in real estate securities) declined to 18.3 percent of total credit risk-weighted assets by 2025Q2. - A Countercyclical Capital Buffer (CCyB) of 50 basis points will come into effect from January 2026. - Regulatory reform and digital finance: - Federal Decree-Law No. 6 of 2025, effective 16 September 2025, overhauled the UAE’s financial regulatory framework: - Consolidates supervision of banking, insurance, fintech, and virtual-asset activities under a single statute. - Expands the Central Bank’s powers for early intervention and resolution. - Embeds digital finance innovations such as open banking and CBDC. - Strengthens enforcement through risk-based, proportionate measures and enhanced penalties. - Strengthens the Central Bank’s independence and role in financial stability and inclusion. - UAE continues aligning financial market regulations with international standards amid rapid digital finance and virtual asset expansion. - Payment Token Services Regulation was introduced in June 2024. - Coordination on regulation of virtual assets is maintained through memorandums of understanding and formal agreements. - Financial Stability Council and operational enhancements: - Financial Stability Council established in October 2023 to promote financial stability, identify systemic risks and strengthen cooperation among regulatory authorities. - In 2025, the Council established an advisory technical committee and three working groups on digital innovation, non-bank financial intermediation and data development. - AML/CFT developments: - New AML/CFT Law enacted in October 2025, refining the UAE’s AML/CFT regime in alignment with FATF standards. - Second National Strategy for AML/CFT/CPF 2024–2027 was adopted in September 2024. - UAE removed from the FATF enhanced monitoring list in February 2024. - European Union removed the UAE from the list of high-risk third countries subject to increased monitoring in July 2025. - Real estate monitoring and tokenization: - Authorities are carefully monitoring buoyant real estate prices; cite mitigating factors: - Large non-mortgaged component of real estate activities in recent years. - Decline in banking sector exposure to the real estate market. - Strong regulatory oversight on the off-plan market. - Real estate tokenization is being explored; currently in a pilot phase within a regulatory sandbox, with authorities assessing risks before full implementation. ### Macro-structural Policies - Diversification and trade integration: - UAE pursuing an ambitious agenda of economic diversification and structural reforms guided by long-term vision and targeted sectoral strategies. - Comprehensive Economic Partnership Agreement (CEPA) program launched in 2021 to diversify trade, strengthen integration into global value chains and expand the investor base. - Since launching CEPA, UAE has reached agreements with 32 countries, of which 13 are currently in force, with additional under negotiation. - Digital economy and climate integration: - UAE positioning itself as a global hub for Artificial Intelligence (AI) through large scale investments in digital infrastructure, strategic partnerships and national initiatives to strengthen AI readiness. - In line with the National Adaptation Plan, UAE is integrating climate risks into sectoral planning and fiscal risk management while investing in climate adaptation and resource management. ### Statistics - Data dissemination and improvements: - Authorities committed to meeting IMF’s enhanced general data dissemination standard (e-GDDS) and continue working towards subscribing to the special data dissemination standards (SDDS). - Data Adequacy Assessment recognizes progress in compiling external sector statistics and national accounts data, and continued improvement in government finance statistics with Fund technical assistance. - Authorities launched a high-level initiative with federal and emirate agencies to improve data sharing, data consistency and timeliness. ### Conclusion - Engagement and outlook: - UAE values its engagement with the Fund. - UAE economy has shown strong resilience amid heightened global uncertainty and external shocks and further integration into the global economy. - Authorities remain committed to reinforcing macroeconomic institutions and continuing prudent macroeconomic policies. - UAE is actively advancing an ambitious economic diversification and structural reform agenda to broaden its economic base and strengthen competitiveness. *Source: Excerpt from IMF staff report (source PDF).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1areea2025001-source-pdf.pdf_