## _cr12116

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### Background and recent developments
- Post-2009 recovery underway with balance-sheet repair and completed Dubai World restructuring; several other troubled government-related entities (GRE) remain in restructuring.
- Authorities measures:
  - Banking sector support through liquidity support, recapitalization, and deposit guarantees.
  - Abu Dhabi provided financial support to Dubai.
  - Dubai Financial Support Fund (DFSF) was called to support troubled entities and has now almost exhausted its funding of $20 billion.
- Diversification and demand drivers:
  - Reduced dependency on oil exports; developed as a major services hub (tourism, transportation, logistics).
  - Benefitted from high oil prices and strong growth in Asia; perceived safe-haven status boosted property demand by expatriates and tourism.
- Key 2011 indicators:
  - Real GDP growth: 4.9 percent (estimated for 2011).
  - Real nonhydrocarbon growth: around 2.7 percent.
  - External current account surplus: around 9 percent of GDP.
  - Inflation: average 0.9 percent in 2011.
- Real estate (end-2011):
  - Dubai prices since mid-2008: fallen by more than 60 percent.
  - Dubai vacancy rates: office 30 percent; retail 20 percent; hotel 25 percent.
  - Abu Dhabi vacancy rates: office 23 percent; hotel 35 percent.
  - Policy responses: 220 Dubai projects in early stages canceled; Dubai Land Department initiatives to support near-completion projects; Abu Dhabi reviewed GRE project pipeline and slowed pace; Aldar received Abu Dhabi support and progressed with restructuring plans.
- Fiscal developments:
  - Consolidated government nonhydrocarbon primary deficit (including loans and equity) rose to nearly 42 percent of nonhydrocarbon GDP in 2011 (from 36 percent in 2010) as Abu Dhabi increased current and development expenditures and extended substantial support to Aldar.
  - Dubai’s deficit increased slightly in 2011, mainly due to further DFSF spending.
  - Consolidated overall balance moved from a deficit of 2.1 percent of GDP in 2010 to an estimated surplus of 2.9 percent of GDP in 2011.
- Banking sector and liquidity:
  - Monetary policy accommodative under the fixed exchange rate regime and low U.S. interest rates.
  - Banks remained amply liquid; private sector credit growth sluggish versus GCC peers.
  - Nonperforming loans rose (second highest level among GCC countries); banking sector remained well-capitalized and profitable.
  - Dubai Bank resolution (October 2011): taken over by Emirates NBD; Emirates NBD received a Dh2.8 billion deposit from the ministry of finance; the government of Dubai provided a guarantee—with a fair value of Dh768 million—for any losses relating to existing assets for seven years.
- External funding shifts:
  - European bank deleveraging from non-core markets observed; Asian and local GCC banks increasingly provided funding.

### Outlook and risks
- Baseline projections for 2012:
  - Real nonhydrocarbon GDP growth: projected to strengthen to 3.5 percent.
  - Overall GDP growth: expected to moderate to 2.3 percent.
  - Inflation: likely to remain subdued at around 1½ percent.
  - External current account surplus: projected to increase to 10.3 percent of GDP.
- Selected downside risks:
  - Sanctions on Iran: illustrative scenario—30 percent reduction of exports to Iran would impact the UAE’s GDP growth by 0.3 percentage point (assumes local value-added content of re-exports to Iran is 25 percent).
  - Renewed global financial deterioration could impair GRE and bank rollover funding.
  - Decline in oil prices would reduce export earnings, fiscal revenues, nonhydrocarbon GDP growth, and asset prices.
  - Marked slowdown in emerging Asia would affect trade, tourism, and external financing.
- Mitigants and upside risks:
  - Central bank and sovereign wealth fund foreign assets provide a comfortable buffer.
  - Higher oil prices amid regional tensions would support fiscal revenues and the external current account, provided exports are not disrupted.
  - Heightened regional tensions could raise safe-haven inflows and real estate demand.
- Spillovers:
  - Outward remittances estimated at $11 billion (2011).
  - Foreign population: more than 70 percent of UAE’s population; 96 percent of the workforce.
  - Employment shares of foreign workers: construction 38 percent; trade and services nearly one third for workers from Lebanon, Syria, and Jordan.
  - Selected distribution of foreign workforce shares:
    - India: 38.3 percent (share in UAE foreign workforce) and 60.13 percent (share in home country population).
    - Bangladesh: 22.0 percent and 0.53 percent.
    - Pakistan: 16.2 percent and 0.37 percent.
    - Philippines: 5.5 percent and 0.23 percent.
    - Egypt: 3.3 percent and 0.16 percent.
- Risk assessment matrix (selected entries):
  - Sanctions on Iran: likelihood Medium to High; expected impact Low to Medium.
  - Worsening global financial conditions: likelihood Medium; expected impact Medium.
  - Large and prolonged decline in hydrocarbon prices: likelihood Low; expected impact High.
  - Marked slowdown in emerging Asia: likelihood Low; expected impact Medium to High.

### Fiscal consolidation and sustainability (section highlights)
- 2012 fiscal consolidation:
  - Planned consolidation in 2012: federal and emirate budgets imply a modest consolidation of the fiscal stance by 0.5 percent of nonhydrocarbon GDP.
  - Composition: a substantial federal salary increase and a large increase in Abu Dhabi’s planned development expenditures are more than offset by reductions in other expenditures and increases in non-tax revenues.
  - Federal salary increase: effective January 2012, federal salaries were raised between 35 and 100 percent depending on grade and sector, adding Dh3.4 billion to the federal wage bill.
- Staff assessment:
  - Staff concurred with the pace of the planned fiscal correction.
  - Fiscal sustainability analysis (permanent income hypothesis) indicates the UAE’s fiscal stance has been too loose to ensure intergenerational equity.
  - Fiscal break-even oil price rose from $23 in 2008 to $92 in 2011.
- Policy guidance:
  - Prudent fiscal plans appropriate to increase scope for fiscal expansion if downside risks materialize (including potential need to support ailing GREs).
  - Vigilance regarding expenditure composition: federal salary increase increases expenditure rigidities and reservation wages; Abu Dhabi’s capital spending plan requires careful project evaluation.

### Dubai and emirate debt sustainability scenarios (Box 4)
- Abu Dhabi plans continued fiscal consolidation through 2017.
- Dubai intends to bring its fiscal accounts close to balance by 2014 as major infrastructure projects are completed.
- Dubai debt scenarios:
  - Baseline: steady recovery and gradual consolidation aiming to bring fiscal accounts close to balance by 2014; debt-to-GDP on a gradual declining path.
  - Alternative scenario A1: constant primary balance at 2011 levels (1.6 percent of GDP) and augmenting government debt by 20 percent of GRE debt would raise the debt-to-GDP ratio by about 26 percentage points by 2017 compared to the baseline.
  - Growth shock A2: decline in GDP growth to 1.3 percent (that is, by ½ standard deviation from the baseline) would add 9 percentage points to the debt-to-GDP ratio by 2017.
  - Global downturn A3: growth, the real interest rate and the primary balance deteriorate significantly in 2012–14 and stay below baseline in 2015–17, resulting in an increase in the debt-to-GDP ratio to 62 percent by 2017.
- Memorandum real GDP growth figures shown in the Box:
  - Real GDP growth baseline: 3.7 3.9 4.1 4.4 4.4 4.4.
  - Real GDP growth path in the global downturn scenario: 0.6 0.8 1.0 2.8 2.8 2.8.

### GRE exposures, debt, and rollover risks
- GRE debt and rollover:
  - Estimated total GRE debt declined to 51 percent of 2011 GDP as of March 2012, from 61 percent of 2010 GDP, though Abu Dhabi’s GRE debt still rose in nominal value.
  - Rollover needs: $30 billion falling due in 2012; significant amounts maturing in 2014–15.
  - Total GRE debt including government guarantees: 184.8 (value presented in source); In percent of 2011 UAE GDP: 51.3.
- GRE composition (end-2010 / March 2012):
  - Total GRE debt: 182.3 (US$ billion) / 61.2 percent of 2010 GDP; 184.8 (US$ billion) / 51.3 percent of 2011 GDP.
  - Government guaranteed: 13.0 / 4.4 ; 9.7 / 2.7.
  - Other: 169.3 / 56.9 ; 175.2 / 48.6.
  - Abu Dhabi GRE debt: 92.9 / 55.0 ; 100.6 / 45.6.
  - Dubai GRE debt: 89.4 / 69.4 ; 84.3 / 60.4.
- Staff recommendations for GREs:
  - Stronger GRE balance sheets: further deleveraging, debt restructuring and asset sales where required.
  - Proper fiscal risk management and reporting framework: contingent liabilities continue to be undisclosed; improve identification and monitoring.
  - Better availability of information on GRE debt: further improve disclosure of financial conditions, debt stock and maturity profiles; passage of draft Public Debt Law would help.
  - Improved GRE corporate governance and transparency: delineate commercial vs noncommercial operations; standardize accounting, auditing, and financial reporting practices.
- Authorities’ progress:
  - Abu Dhabi made public the list of companies explicitly supported by the government.
  - Dubai emphasizes Dubai GREs are not backed by a sovereign guarantee; Department of Finance and Supreme Fiscal Committee play a major role in GRE debt monitoring and approval of new borrowing.

### Financial sector soundness, liquidity, and regulatory measures
- Asset quality and stress:
  - NPL ratio of national banks: 6.2 percent in 2011.
  - NPL ratio in Dubai banks: 10.6 percent in 2011.
  - Staff notes NPL ratio could further increase by about 5 percentage points in 2012 due to ongoing restructurings and real estate stress.
  - Stress tests: domestic banking system could absorb a significant increase in NPLs, but some banks with high real estate loan concentration could see Tier 1 capital fall below regulatory minimum in a severe stress scenario.
- Liquidity tools and market development:
  - CBU launched a repurchase facility for Islamic certificates of deposits in June 2011.
  - CBU mainly relies on CDs to manage banking system liquidity and has started work towards creating a marginal lending facility.
  - These facilities, together with domestic money and bond market development, are key to preparing for Basel 3 liquidity norms (planned to be phased in between 2015 and 2018).
  - Passage of the draft Public Debt Law would help accelerate preparations.
- Shielding banks from GRE risks:
  - Net exposure of the banking system to government and public institutions increased by 3.5 percent of GDP in 2011 (2.6 percent of banking system assets).
  - Exposures are not consistently classified across banks’ balance sheets and government fiscal accounts.
  - Risk that GREs may increasingly turn to domestic banks if external financing becomes difficult; avoid channeling bank funding to non-viable GREs.
  - Effective implementation of aggregate limits on bank lending to GREs will help contain risks.
  - Additional measures: imposing higher capital charges and introducing forward provisioning on exposures to risky GREs.
- Recent regulatory limits (April 2012):
  - New limits set by the central bank: 100 percent of the capital base for all lending by a bank to UAE emirate governments and their non-commercial entities, and 25 percent to individual borrowers.
  - Aggregate limit of 100 percent of capital of banks for lending to commercial entities of the federal government and local governments.
  - Cap of 15 percent for funded exposure to individual borrowers.
- Supervisory strengthening:
  - CBU increased general and specific provisioning requirements and restricted dividend distribution in some cases.
  - Staff emphasized implementing regulations under consideration on liquidity and real estate lending.
  - Development of a formal macroprudential framework with legal underpinning recommended.
  - Tailoring the CBU’s early warning system to system-wide risks (GREs and real estate) recommended.

### Exchange rate assessment and monetary stance
- Exchange rate regime and monetary conditions:
  - Dirham pegged de jure to the U.S. dollar at AED 3.6725 = US$1.
  - Low global interest rates ensure appropriately accommodative monetary conditions under the peg while inflation remains subdued.
- Exchange rate assessment: mixed results across methodologies
  - Macroeconomic balance approach: little evidence for misalignment.
  - Equilibrium exchange rate approach: points to moderate undervaluation (REER about 10 percent undervalued as of end-2011).
  - External sustainability (permanent income/annuity benchmark) approach: indicates moderate overvaluation—implies need to accumulate further savings of about 8 percent of GDP in 2017 under one annuitized benchmark.

### Statistics, data adequacy, and institutional reforms
- General assessment:
  - Data provision broadly adequate for surveillance, but substantial shortcomings on accounts of government-related corporations; limited data on GRE debt and contingent liabilities.
- Institutional developments:
  - Federal Statistics Law adopted May 18, 2009; independent National Bureau of Statistics (NBS) established.
  - Law requires agencies and local statistical centers to provide data to NBS; implementation success depends on arrangements, staffing, funding and training.
- Gaps and needs:
  - National accounts: methodology broadly conforms to 1968 SNA; GDP compiled annually with a lag of around 12 months; further work needed to improve updating procedures; quarterly indicators not available.
  - Price statistics: monthly CPI published since January 2008 after IMF TA; further harmonization of price indexes and GDP deflators needed.
  - Government finance statistics: GFSM 2001 introduced by federal and several emirate governments in 2011; consolidation should complement debt management units.
  - Monetary statistics: responsibility shifted to Banking Supervision and Examination Department to improve timeliness to monthly frequency; department not trained in MFSM 2000 and published data do not follow recommended methodology.
  - Balance of Payments and IIP: information insufficient, especially for the financial account; many IIP components missing or incomplete; data on government foreign assets and private holdings not published or lack surveys.
- Participation and metadata:
  - Participant in the GDDS since July 31, 2008; metadata last updated in 2008 for multiple datasets.
- Public Information Notice (IMF Executive Board conclusions, May 14 and May 16, 2012):
  - Growth: estimated real GDP growth 4.9 percent in 2011; real nonhydrocarbon growth 2.7 percent.
  - FY outlook and policy: fiscal stance appropriately focused on gradual consolidation; encouraged deleveraging and transparency for GREs; welcomed aggregate lending limits to GREs; recommended domestic debt market development and statistical strengthening.

### Key statistics and projections (selected figures preserved)
- Fiscal consolidation: 0.5 percent of nonhydrocarbon GDP (2012 plan).
- Federal salary increase: between 35 and 100 percent; Dh3.4 billion added to the federal wage bill.
- Fiscal break-even oil price: $23 in 2008; $92 in 2011.
- GRE debt estimates:
  - Estimated total GRE debt: 51 percent of 2011 GDP as of March 2012 (down from 61 percent of 2010 GDP).
  - Rollover needs in 2012: $30 billion.
  - Total GRE debt including government guarantees: 184.8; In percent of 2011 UAE GDP: 51.3.
- Banking sector asset quality:
  - NPL ratio, national banks (2011): 6.2 percent.
  - NPL ratio, Dubai banks (2011): 10.6 percent.
  - Potential additional NPL increase in 2012: about 5 percentage points.
- Dubai debt stress test outcomes:
  - Dubai government primary balance assumption in alternative scenario: 1.6 percent of GDP.
  - Alternative scenario impact on Dubai debt: about 26 percentage points higher debt-to-GDP by 2017 compared to baseline.
  - Growth shock impact on Dubai debt: adds 9 percentage points to debt-to-GDP by 2017.
  - Global downturn scenario outcome for Dubai debt-to-GDP: 62 percent by 2017.
- Selected macroeconomic time series excerpts (2008–17 highlights):
  - Real GDP (annual percent change): 5.3 -3.3 0.9 4.9 2.3 2.8 3.3 3.5 3.6 3.7.
  - Real nonhydrocarbon GDP (annual percent change): 6.3 0.6 2.1 2.7 3.5 3.8 4.0 4.2 4.5 4.5.
  - Current account balance (percent of GDP): 7.9 3.4 3.1 9.2 10.3 10.4 9.9 9.6 9.3 9.1.
  - Exports of oil, oil products, and gas (billions of U.S. dollars): 103.0 68.1 74.6 111.6 122.1 118.4 112.9 108.7 106.2 105.3.
  - Nominal GDP (billions of UAE dirhams): 1,156 993 1,093 1,323 1,419 1,449 1,480 1,520 1,576 1,646.
  - Gross official reserves (billions of U.S. dollars): 30.9 25.5 32.8 36.4 40.8 44.4 48.2 51.4 55.1 58.6.

### Policy recommendations (selected, as presented)
- Fiscal policy:
  - Pursue gradual fiscal consolidation to restore sustainability and preserve room for countercyclical support if downside risks materialize.
  - Carefully evaluate Abu Dhabi capital spending projects to ensure productivity; be vigilant about expenditure composition given large federal salary increase.
  - Advance revenue diversification measures: overhaul federal fees, technical preparations for a value added tax (GCC-level discussion), and economic impact study on a corporate income tax.
  - Passage of the draft organic budget law to mandate a medium-term expenditure framework and require use of a treasury single account.
- GREs and public sector exposures:
  - Implement comprehensive GRE strategy: deleveraging, debt restructuring, asset sales, stronger disclosure, and improved corporate governance.
  - Improve fiscal risk management and reporting frameworks to identify contingent liabilities.
  - Passage of the draft Public Debt Law to improve disclosure and debt management.
- Financial sector:
  - Continue CBU monitoring of liquidity and capital buffers; encourage proactive bank liquidity management.
  - Implement aggregate limits on bank lending to GREs; consider higher capital charges and forward provisioning on risky GRE exposures.
  - Develop domestic fixed income markets to support liquidity management and Basel 3 preparedness.
  - Strengthen regulation, implement liquidity and real estate lending rules, and develop a formal macroprudential framework with legal underpinning.
  - Undertake a bank governance diagnostic in the context of the forthcoming Financial Sector Assessment Program.
- Statistics and institutions:
  - Strengthen statistical capacity: national accounts, balance of payments, fiscal accounts, and labor market statistics.
  - Improve coordination among federal and emirate-level statistical agencies and implement NBS law effectively.
  - Seek IMF technical assistance for fiscal coordination, national accounts, and balance of payments improvements.
- IMF relations:
  - Recommended next Article IV consultation on the standard 12-month cycle.

*Excerpted from the INTERNATIONAL MONETARY FUND: UNITED ARAB EMIRATES 2012 ARTICLE IV REPORT, content unit _cr12116.*

### 2012. The staff team comprised Harald Finger (head), Ananthakrishnan

### UNITED ARAB EMIRATES 2012 ARTICLE IV REPORT (excerpt)

### Background
- Post-2009 recovery underway with balance-sheet repair and completed Dubai World restructuring; several other troubled government-related entities (GRE) remain in restructuring.
- Authorities measures:
  - Banking sector support through liquidity support, recapitalization, and deposit guarantees.
  - Abu Dhabi provided financial support to Dubai.
  - Dubai Financial Support Fund (DFSF) was called to support troubled entities and has now almost exhausted its funding of $20 billion.
- Diversification progress:
  - UAE has reduced dependency on oil exports and developed as a major services hub (tourism, transportation, logistics) supporting the post-2009 recovery.
  - Benefitted from high oil prices and strong growth in Asia.
  - Perceived safe-haven status boosted property demand by expatriates and tourism.

### Recent Developments
- Growth and external position (2011):
  - Real GDP growth: 4.9 percent (estimated for 2011).
  - Real nonhydrocarbon growth: around 2.7 percent.
  - External current account surplus: around 9 percent of GDP.
  - Inflation: average 0.9 percent in 2011.
- Real estate sector:
  - Since mid-2008, real estate prices have fallen by more than 60 percent in Dubai (and less so in Abu Dhabi).
  - Large supply overhang and project completions make early broad-based recovery unlikely.
  - Dubai real estate market (end-2011): office vacancy rate 30 percent; retail vacancy rate 20 percent; hotel vacancy rate 25 percent.
  - Abu Dhabi market (end-2011): office vacancy rate 23 percent; hotel vacancy rate 35 percent.
  - Policy responses: 220 Dubai projects in early stages canceled; Dubai Land Department initiatives to support near-completion projects; Abu Dhabi reviewed GRE project pipeline and slowed pace; Aldar received Abu Dhabi support and progressed with restructuring plans; federal legal amendments under discussion to relax foreign ownership restrictions.
- Fiscal developments:
  - Consolidated government nonhydrocarbon primary deficit (including loans and equity) rose to nearly 42 percent of nonhydrocarbon GDP in 2011 (from 36 percent in 2010) as Abu Dhabi increased current and development expenditures and extended substantial support to Aldar.
  - Dubai’s deficit increased slightly in 2011, mainly due to further DFSF spending.
  - Consolidated overall balance moved from a deficit of 2.1 percent of GDP in 2010 to an estimated surplus of 2.9 percent of GDP in 2011.
- Banking sector and liquidity:
  - Monetary policy remained accommodative under the fixed exchange rate regime and low U.S. interest rates.
  - Banks remained amply liquid but private sector credit growth remained sluggish compared with GCC peers.
  - Nonperforming loans rose (second highest level among GCC countries) though the banking sector remained well-capitalized and profitable; net interest margins stayed comfortable.
  - Dubai Bank resolution (October 2011): taken over by Emirates NBD; in connection Emirates NBD received a Dh2.8 billion deposit from the ministry of finance; the government of Dubai provided a guarantee—with a fair value of Dh768 million—for any losses relating to existing assets for seven years.
- External funding:
  - European bank deleveraging from non-core markets has been observed; Asian and local GCC banks increasingly stepped in to provide funding.

### Outlook and Risks
- Baseline projections for 2012:
  - Real nonhydrocarbon GDP growth: projected to strengthen to 3.5 percent.
  - Overall GDP growth: expected to moderate to 2.3 percent (limited potential for further oil production increases).
  - Inflation: likely to remain subdued at around 1½ percent.
  - External current account surplus: projected to increase to 10.3 percent of GDP (supported by high oil prices).
- Downside risks (selected):
  - More pronounced impact of international sanctions on Iran affecting bilateral trade, real estate demand, tourism, and financial services to Iran-based customers.
    - Illustrative scenario: a 30 percent reduction of exports to Iran would impact the UAE’s GDP growth by 0.3 percentage point (assumes local value-added content of re-exports to Iran is 25 percent).
  - Renewed global financial deterioration could make it more difficult to roll over GREs’ debt and banks’ wholesale funding.
  - Decline in oil prices from weak advanced-economy growth would reduce export earnings, fiscal revenues, and nonhydrocarbon GDP growth, and adversely affect asset prices.
  - A marked slowdown in emerging Asia would affect trade, tourism, and external financing.
- Mitigating factors and upside risks:
  - Central bank and sovereign wealth fund foreign assets provide a comfortable buffer.
  - Higher oil prices amid regional geopolitical tensions would further support fiscal revenues and the external current account, provided exports are not disrupted.
  - Heightened regional tensions could also raise safe-haven inflows and real estate demand.
- Spillovers:
  - A UAE slowdown could significantly affect remittance-dependent countries in South Asia and the Mashreq.
  - Outward remittances estimated at $11 billion (2011).
  - Foreign population and labor shares: foreigners comprise more than 70 percent of UAE’s population and 96 percent of the workforce.
  - Construction employs 38 percent of foreign workers; trade and services employ nearly one third of foreign workers from Lebanon, Syria, and Jordan.
  - Distribution of foreign workforce (selected shares):
    - India: 38.3 percent (share in UAE foreign workforce) and 60.13 percent (share in home country population).
    - Bangladesh: 22.0 percent and 0.53 percent.
    - Pakistan: 16.2 percent and 0.37 percent.
    - Philippines: 5.5 percent and 0.23 percent.
    - Egypt: 3.3 percent and 0.16 percent.
- Risk assessment matrix (selected entries):
  - More pronounced impact of sanctions on Iran: Staff assessment likelihood Medium to High; expected impact Low to Medium.
  - Worsening global financial conditions: Staff assessment likelihood Medium; expected impact Medium.
  - Large and prolonged decline in hydrocarbon prices: Staff assessment likelihood Low; expected impact High.
  - Marked slowdown in emerging Asia: Staff assessment likelihood Low; expected impact Medium to High.

### Policy Discussions (overview of themes)
- Maintaining macroeconomic stability and supporting the economy (section A headline appears in contents; detailed discussion follows in source).
- Managing risks from GREs and GRE-related financial exposures (section B headline; detailed discussion follows in source).
- Financial sector soundness and financial spillovers (section C headline; detailed discussion follows in source).
- Other issues (section D headline; detailed discussion follows in source).

*Excerpted from the INTERNATIONAL MONETARY FUND: UNITED ARAB EMIRATES 2012 ARTICLE IV REPORT (selected pages).*

### 12.      Following last year’s fiscal expansion,

### _cr12116 - 12.      Following last year’s fiscal expansion,

### Fiscal consolidation and sustainability
- Planned consolidation in 2012: federal and emirate budgets imply a modest consolidation of the fiscal stance by 0.5 percent of nonhydrocarbon GDP.
- Composition of 2012 measures: a substantial federal salary increase and a large increase in Abu Dhabi’s planned development expenditures are more than offset by reductions in other expenditures and increases in non-tax revenues.
  - Federal salary increase: effective January 2012, federal salaries were raised between 35 and 100 percent depending on grade and sector, adding Dh3.4 billion to the federal wage bill.
- Staff assessment and sustainability indicators:
  - Staff concurred with the pace of the planned fiscal correction.
  - Fiscal sustainability analysis (permanent income hypothesis) indicates the UAE’s fiscal stance has been too loose to ensure intergenerational equity.
  - Fiscal break-even oil price rose from $23 in 2008 to $92 in 2011.
  - Projected non-hydrocarbon primary budget deficits and equilibrium non-hydrocarbon primary budget deficits are presented in the Fiscal Sustainability Analysis, 2011–17 (figure referenced).
- Policy guidance:
  - Prudent fiscal plans are appropriate to increase scope for fiscal expansion if downside risks materialize (including potential need to support ailing GREs).
  - Staff advised vigilance regarding expenditure composition: the federal salary increase increases expenditure rigidities and reservation wages; Abu Dhabi’s capital spending plan requires careful project evaluation to ensure productivity.

- Definition note (as provided in source):
  - The fiscal stance is defined as the consolidated non-hydrocarbon primary balance for the federal, Abu Dhabi, Dubai, and Sharjah budgets including loans and equity but excluding (i) the operations of Dubai Financial Support Fund, (ii) Abu Dhabi government’s support for the real estate company Aldar in 2011, and (iii) the investment income from the sovereign wealth funds. Abu Dhabi’s 2012 budget is not yet available; numbers are staff estimates.

### Emirate fiscal plans and Dubai debt sustainability (Box 4)
- Abu Dhabi and Dubai intentions:
  - Abu Dhabi plans continued fiscal consolidation through 2017.
  - Dubai intends to bring its fiscal accounts close to balance by 2014 as major infrastructure projects are completed.
- Dubai debt sustainability analysis:
  - Baseline scenario: steady recovery of growth and gradual consolidation aiming to bring fiscal accounts close to balance by 2014; under baseline the debt-to-GDP ratio is on a gradual declining path.
  - Alternative scenario A1: assuming a constant primary balance at 2011 levels (1.6 percent of GDP) and augmenting government debt by 20 percent of GRE debt would raise the debt-to-GDP ratio by about 26 percentage points by 2017 compared to the baseline.
  - Growth shock scenario A2: a decline in GDP growth to 1.3 percent (that is, by ½ standard deviation from the baseline) would add 9 percentage points to the debt-to-GDP ratio by 2017.
  - Global downturn scenario A3: growth, the real interest rate and the primary balance deteriorate significantly in 2012–14 and stay below baseline in 2015–17, resulting in an increase in the debt-to-GDP ratio to 62 percent by 2017.
- Memorandum real GDP growth figures shown in the Box:
  - Real GDP growth baseline: 3.7 3.9 4.1 4.4 4.4 4.4 (sequence presented in source).
  - Real GDP growth path in the global downturn scenario: 0.6 0.8 1.0 2.8 2.8 2.8 (sequence presented in source).

### Revenue diversification and budget practices
- Initiatives under consideration:
  - Overhaul of multiple fees collected by federal ministries.
  - Technical preparations for the eventual introduction of a value added tax (under discussion at the GCC level).
  - Economic impact study for possible introduction of a corporate income tax.
  - Passage of the draft organic budget law to mandate a medium-term expenditure framework and require use of a treasury single account.

### Exchange rate, monetary conditions, and inflation
- Low global interest rates ensure appropriately accommodative monetary conditions under the U.S. dollar peg while inflation remains subdued.
- Exchange rate assessment: mixed results across methodologies
  - Macroeconomic balance approach: little evidence for misalignment.
  - Equilibrium exchange rate approach: points to moderate undervaluation.
  - External sustainability approach: indicates moderate overvaluation — supporting the case for medium-term fiscal consolidation.

### Managing risks stemming from GREs
- GRE debt and rollover risks:
  - Estimated total GRE debt declined to 51 percent of 2011 GDP as of March 2012, from 61 percent of 2010 GDP, though Abu Dhabi’s GRE debt still rose in nominal value.
  - Rollover risks: $30 billion falling due in 2012; significant amounts maturing in 2014–15.
  - Total GRE debt including government guarantees: 184.8 (number presented in source); In percent of 2011 UAE GDP: 51.3 (values preserved as in source).
- Staff recommendations for a comprehensive strategy to bolster market confidence and transparency:
  - Stronger GRE balance sheets: further deleveraging, debt restructuring and asset sales where required.
  - Proper fiscal risk management and reporting framework: contingent liabilities continue to be undisclosed; improve identification and monitoring.
  - Better availability of information on GRE debt: further improve disclosure of financial conditions, debt stock and maturity profiles; passage of draft Public Debt Law would help.
  - Improved GRE corporate governance and transparency: delineate commercial vs noncommercial operations; standardize accounting, auditing, and financial reporting practices.
- Authorities’ progress noted:
  - Abu Dhabi has made public the list of companies explicitly supported by the government.
  - Dubai authorities emphasize Dubai GREs are not backed by a sovereign guarantee and that the Department of Finance and Supreme Fiscal Committee play a major role in GRE debt monitoring and approval of new borrowing.

### Financial sector soundness, liquidity, and spillovers
- Nonperforming loan (NPL) developments and stress:
  - NPL ratio of national banks: 6.2 percent in 2011 (sharp increase from 2008 pre-crisis levels).
  - NPL ratio in Dubai banks: 10.6 percent in 2011.
  - Staff notes the NPL ratio could further increase by about 5 percentage points in 2012 due to ongoing restructurings and stress in real estate companies.
  - Staff stress tests: domestic banking system could absorb a significant increase in NPLs, but some banks with high real estate loan concentration could see Tier 1 capital fall below regulatory minimum in a severe stress scenario.
- Liquidity monitoring and tools:
  - Central Bank of the UAE (CBU) will closely monitor liquidity and encourage banks to proactively manage liquidity risks.
  - Funding structure improved since 2009, but banks have increased liabilities to foreign banks since last summer.
  - Stress tests indicate a foreign funding shock may tighten foreign currency liquidity and require management at individual bank level.
  - CBU liquidity tools and market development:
    - June 2011: CBU launched a repurchase facility for Islamic certificates of deposits (CD).
    - CBU mainly relies on CDs to manage banking system liquidity and has started work towards creating a marginal lending facility.
    - These facilities, together with domestic money and bond market development, are key to preparing for Basel 3 liquidity norms (planned to be phased in between 2015 and 2018).
    - Passage of the draft Public Debt Law would help accelerate preparations.
- Shielding banks from GRE risks and exposures:
  - Net exposure of the banking system to government and public institutions increased by 3.5 percent of GDP in 2011 (2.6 percent of banking system assets).
  - Some exposures are not consistently classified across banks’ balance sheets and government fiscal accounts, causing non-transparency in regulatory compliance.
  - Risk that GREs may increasingly turn to domestic banks if external financing becomes difficult; staff and authorities agree it is important to avoid channeling bank funding to non-viable GREs.
  - Effective implementation of aggregate limits on bank lending to GREs will help contain risks.
  - Additional mitigating measures: imposing higher capital charges and introducing forward provisioning on exposures to risky GREs.
- Regulatory and supervisory strengthening:
  - Staff welcomed CBU’s efforts to increase general and specific provisioning requirements and to restrict dividend distribution in some cases.
  - Staff emphasized implementation of regulations under consideration on liquidity and real estate lending.
  - Developing a formal macroprudential framework with legal underpinning would help calibrate systemic regulation.
  - Tailoring the CBU’s early warning system to system-wide risks (including GREs and real estate) would help identify risks early.

- Recent regulatory limits (as noted in source, April 2012):
  - New limits set by the central bank: 100 percent of the capital base for all lending by a bank to UAE emirate governments and their non-commercial entities, and 25 percent to individual borrowers.
  - Aggregate limit of 100 percent of capital of banks for lending to commercial entities of the federal government and local governments.
  - Cap of 15 percent for funded exposure to individual borrowers.

### Key statistics and figures (as presented in source)
- Fiscal consolidation: 0.5 percent of nonhydrocarbon GDP.
- Federal salary increase: between 35 and 100 percent; Dh3.4 billion added to the federal wage bill.
- Fiscal break-even oil price: $23 in 2008; $92 in 2011.
- GRE debt estimates:
  - Estimated total GRE debt: 51 percent of 2011 GDP as of March 2012 (down from 61 percent of 2010 GDP).
  - Rollover needs in 2012: $30 billion.
  - Total GRE debt including government guarantees: 184.8 (value presented in source); In percent of 2011 UAE GDP: 51.3.
- Banking sector asset quality and stress:
  - NPL ratio, national banks (2011): 6.2 percent.
  - NPL ratio, Dubai banks (2011): 10.6 percent.
  - Potential additional NPL increase in 2012: about 5 percentage points.
- Dubai government primary balance assumption in alternative scenario: 1.6 percent of GDP.
- Alternative scenario impact on Dubai debt: about 26 percentage points higher debt-to-GDP by 2017 compared to baseline.
- Growth shock impact on Dubai debt: adds 9 percentage points to debt-to-GDP by 2017.
- Global downturn scenario outcome for Dubai debt-to-GDP: 62 percent by 2017.

*Source: 2012 Article IV Report — United Arab Emirates (IMF), section titled "Following last year’s fiscal expansion" (content unit _cr12116).*

### 28.      Effective bank governance is

### _cr12116 - 28.      Effective bank governance is

### Bank governance and financial sector soundness
- Effective bank governance is fundamental to support financial sector soundness.
- Given the government’s control of banks and the banks’ high exposure to GREs, a clear governance framework is needed to safeguard the banks’ financial integrity.
- Staff suggested that the CBU undertake a bank governance diagnostic in the context of the forthcoming Financial Sector Assessment Program.
- Improvements in corporate governance are essential to mitigate GRE-related risks.

### Fiscal policy coordination
- Effective intergovernmental coordination of fiscal policy will buttress effective demand management and fiscal sustainability.
- Information sharing between the federal and emirate governments and the CBU is a key precondition for effective fiscal policy.
- Staff welcomes progress in information sharing, facilitated by the Fiscal Coordination Council (FCC), and encouraged the authorities to include information sharing on GRE financial operations.
- The authorities plan to extend the FCC’s work to the effective coordination of fiscal policy plans, including:
  - Joint determination of aggregate revenue, expenditure, and financing plans in light of macroeconomic and other policy considerations.
  - Breakdown of aggregate goals into plans for the federal and emirate level authorities.
- The authorities asked for Fund technical assistance in this area.

### Statistics and data capacity
- Authorities recognized the need to further strengthen statistics.
- Progress made: establishment of the National Bureau of Statistics and Debt Management Offices; improved databases and quality of economic statistics.
- Remaining needs:
  - Improve methodologies and timely compilation and dissemination of key statistics, including on balance of payments, national accounts, fiscal accounts and labor market statistics.
  - Improve coordination among federal and emirate-level statistical agencies.
- The authorities requested follow-up technical assistance on national accounts statistics and the balance of payments, and intend to upgrade labor market statistics.

### Staff appraisal — macroeconomic outlook and buffers
- The continued economic recovery is encouraging.
- Growth has been supported by high oil prices and strong demand from the UAE’s trading partners, notwithstanding continued weakness of the domestic construction and real estate sectors.
- The still uncertain global environment and regional geopolitical tensions could pose risks to the favorable outlook, but the sizeable buffers of the sovereign wealth funds and the central bank strengthen the economy’s resilience to external shocks.

### Staff appraisal — fiscal policy and consolidation
- Fiscal policy is appropriately aimed at gradual consolidation.
- The authorities’ fiscal plans imply a gradual unwinding of the past fiscal stimulus in response to the 2009 crisis.
- The consolidation is welcome because the expansionary stance led to a significant increase in the breakeven oil price and is no longer needed; fiscal policy should now focus on fiscal sustainability.
- Prudent fiscal policy increases room for maneuver if downside risks materialize.
- The gradual pace of consolidation would not undermine the economic recovery.
- Dubai’s plans for fiscal consolidation are especially welcome as they help improve the emirate’s debt sustainability in the face of contingent liabilities related to GREs and the still weak real estate market.

### Staff appraisal — expenditure composition
- Care should be taken in managing the expenditure composition.
- The generous federal salary increase adds to expenditure rigidities.
- The planned increase in Abu Dhabi’s development expenditures suggests a need for careful project evaluation.

### Staff appraisal — monetary stance and exchange rate
- The policy mix will be balanced by an accommodative monetary stance under the peg to the U.S. dollar.
- Continued low U.S. interest rates will imply appropriately accommodative monetary conditions in the near term accompanying fiscal tightening during the still fragile economic recovery.
- The exchange rate has remained broadly aligned with fundamentals, and the exchange rate peg continues to serve as an effective nominal anchor for the economy.

### Staff appraisal — GRE risks and public sector exposures
- Mitigating the continued risks posed by GREs should remain a priority.
- Total GRE debt as percent of GDP declined last year and the GREs are now more proactive in managing debt rollovers.
- GREs still face high refinancing needs and reliance on foreign funding.
- Further deleveraging and strengthening of impaired GRE balance sheets is needed, together with increased transparency and communications about their financial strategies.
- Classification of GRE and sovereign exposures across banks’ balance sheets and government fiscal accounts should be consistent to ensure proper accounting of fiscal and banking system risks.

### Staff appraisal — banking system resilience and supervisory measures
- The CBU should continue to closely monitor banks’ liquidity and capital buffers.
- While the aggregate banking system maintains significant buffers, individual banks could be affected if downside risks materialize.
- The CBU should continue to encourage banks to proactively manage their liquidity and capital positions in light of these potential risks.
- The banking system should be shielded from taking further GRE risks:
  - Avoid channeling bank funding to non-viable GREs.
  - Recently introduced aggregate limits on lending to GREs will help contain this risk.
  - Imposing higher capital charges and introducing forward provisioning on exposures to risky GREs would further alleviate risks to the banking system.

### Staff appraisal — financial market development
- Developing the domestic fixed income market would support banks’ liquidity management.
- Passage of the Public Debt Law would help accelerate preparing banks for the Basel 3 liquidity framework without constraining credit growth.
- Well-developed domestic debt markets would aid diversification of funding sources for corporates.

### Progress on coordination and statistics (summary)
- The recent progress in fiscal coordination among federal and emirate-level entities is encouraging; next steps include extending the FCC’s work to effective coordination of fiscal policy plans and including information on GREs.
- Efforts to further improve statistical capacity are welcome; priority areas are the balance of payments, national accounts, fiscal accounts and labor market statistics.

*International Monetary Fund — 2012 Article IV Report, United Arab Emirates (excerpt).*

### 42.      It is recommended that the next

### _cr12116 - 42.      It is recommended that the next

### Article IV timing
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Nonhydrocarbon economy — key observations and indicators
- The recovery in non-hydrocarbon growth is gaining strength, but the UAE still lags behind most of its GCC peers.
- Dubai: Total Hotel Guests, 2008–2011 shown in millions (series plotted 2008–2011).
- Traffic at Dubai International Airport: passengers per month (thousands) and cargo (tons per month, RHS) show strengthening transportation sector performance.
- GCC Non-oil GDP Growth (Percent change) and Dubai and Abu Dhabi Non-hydrocarbon GDP Growth (Annual percent change) series illustrated for 2002–2012 and 2008–2011 respectively.

### Fiscal developments — major findings and indicators
- Abu Dhabi relies overwhelmingly on hydrocarbon revenues; Dubai's revenues are mostly from nonhydrocarbon sources.
- Government support to GREs ballooned in Abu Dhabi and Dubai during the crisis.
- Wage bill growth moderated during the crisis, but it is picking up again this year.
- The UAE's fiscal breakeven oil price has almost quadrupled since 2008.
- Abu Dhabi Revenues and the Oil Price (Billions of Dirhams) series and Dubai Revenues and the Oil Price (Billions of Dirhams) series displayed for 2000–2010.
- Abu Dhabi Expenditures and Dubai Expenditures (Billions of Dirhams) series shown for 2000–2010.
- Wage Bill Growth Rate and the Oil Price (In percent) series shown for 2000–2012.
- Breakeven Oil Prices (U.S. dollars per barrel) series shows GCC average and UAE breakeven alongside Oil price for 2008–2011.

### Monetary and financial developments — major findings and indicators
- Monetary conditions remain accommodative, with ample liquidity despite slow deposit growth in 2011.
- Increase in credit in 2011 was mainly to Government and official entities.
- Equity markets remain subdued; CDS spreads in Dubai are in a downward trend.
- Policy rates: U.S. Fed Funds Rate and CBU Policy Rate series (Percent) for Dec-07 to Dec-11.
- Bank liquidity: CDs held by banks and Banks' deposits with CBU (Billions of Dirham) for Dec-07 to Dec-11.
- Bank Deposits (Billions of Dirham): Government deposits and Non-government deposits for Dec-07 to Dec-11.
- Bank Credit (Billions of Dirham): Other fin. ins., Private sector, Official entities, Government for Dec-07 to Dec-11.
- Stock Market Indices (Index, Dec. 31, 2005=100) for Dubai, Abu Dhabi, GCC 200, S&P 500 series Dec-05 to Dec-11.
- GCC: CDS Spreads (Basis points) series for Oct-08 to Oct-11.

### Selected macroeconomic indicators (Table 1 highlights, 2008–17)
- Hydrocarbon sector
  - Exports of oil, oil products, and gas (in billions of U.S. dollars): 103.0 68.1 74.6 111.6 122.1 118.4 112.9 108.7 106.2 105.3 (2008–2017)
  - Average crude oil export price (in U.S. dollar per barrel): 96.3 62.8 77.0 109.6 119.7 115.0 107.8 102.2 98.3 96.0
  - Crude oil production (in millions of barrels per day): 2.6 2.3 2.3 2.6 2.6 2.6 2.6 2.7 2.7 2.8
- Output and prices
  - Nominal GDP (in billions of UAE dirhams): 1,156 993 1,093 1,323 1,419 1,449 1,480 1,520 1,576 1,646
  - Nominal GDP (in billions of U.S. dollars): 315 270 298 360 386 394 403 414 429 448
  - Real GDP (annual percent change): 5.3 -3.3 0.9 4.9 2.3 2.8 3.3 3.5 3.6 3.7
  - Real hydrocarbon GDP (annual percent change): 1.6 -9.9 -1.5 9.2 0.0 1.0 2.0 1.9 1.8 1.9
  - Real nonhydrocarbon GDP (annual percent change): 6.3 0.6 2.1 2.7 3.5 3.8 4.0 4.2 4.5 4.5
  - CPI inflation (average): 12.3 1.6 0.9 0.9 1.5 1.7 1.9 1.9 1.9 2.1
- Investment and saving
  - Gross domestic investment (percent of GDP): 22.5 23.9 25.3 22.4 24.6 23.4 22.4 22.5 22.9 23.5
  - Total fixed capital formation: 21.2 22.3 23.8 22.4 24.6 23.4 22.4 22.5 22.9 23.5
  - Gross national saving (percent of GDP): 30.1 27.1 28.5 31.7 34.9 33.8 32.3 32.0 32.2 32.6
- Public finances
  - Revenue (percent of GDP): 39.0 25.7 28.7 33.3 34.6 33.2 31.5 30.7 30.0 29.7
  - Hydrocarbon revenue (percent of GDP): 31.2 17.5 21.4 27.4 28.5 26.9 25.1 23.6 22.2 21.2
  - Nonhydrocarbon revenue (percent of GDP): 7.9 8.2 7.2 5.9 6.1 6.2 6.4 7.2 7.7 8.5
  - Expenditure and net lending (percent of GDP): 22.3 38.0 30.8 30.4 26.9 26.2 25.9 25.4 25.0 24.5
  - Overall balance (percent of GDP): 16.8 -12.3 -2.1 2.9 7.7 7.0 5.7 5.3 5.0 5.2
  - Non-hydrocarbon primary balance (excluding investment income) 1/: -26.4 -44.3 -35.5 -41.5 -36.5 -33.8 -31.7 -29.8 -28.0 -26.5
  - Adjusted non-hydrocarbon primary balance 2/: -26.4 -37.4 -33.6 -37.0 -36.5 -33.8 -31.7 -29.8 -28.0 -26.5
  - Central government debt to banking system 3/: 12.5 22.5 21.3 16.9 14.6 14.3 14.9 15.1 15.1 14.7
- Monetary sector
  - Net foreign assets: -79.4 42.0 67.7 17.9 18.9 8.4 7.6 6.8 7.0 5.7
  - Net domestic assets: 58.2 8.2 2.0 3.6 5.8 9.2 10.3 10.5 11.7 12.4
  - Credit to private sector (annual percent change): 49.3 0.7 1.2 2.3 3.1 5.7 6.5 6.3 7.3 7.6
  - Broad money (M2) (annual percent change): 19.2 9.8 6.2 5.0 7.1 9.2 10.0 10.0 11.1 11.6
- External sector
  - Exports and re-exports of goods (billions of U.S. dollars): 240 192 212 279 307 321 336 347 360 376
  - Imports of goods (billions of U.S. dollars): 176 150 161 198 217 228 242 254 266 282
  - Current account balance (billions of U.S. dollars): 24.8 9.1 9.1 33.3 40.0 40.9 40.1 39.6 39.8 40.8
  - Current account balance (in percent of GDP): 7.9 3.4 3.1 9.2 10.3 10.4 9.9 9.6 9.3 9.1
  - Gross official reserves 5/: 30.9 25.5 32.8 36.4 40.8 44.4 48.2 51.4 55.1 58.6
  - In months of next year's imports of goods & services: 2.0 1.5 1.6 1.6 1.7 1.8 1.8 1.9 1.9 1.9
- Memorandum:
  - Local currency per U.S. dollar (period average): 3.673 3.673 3.673 3.67 ............
  - Nominal effective exchange rate (2000 = 100): 84.2 88.3 87.5 84.9 ............
  - Real effective exchange rate (2000 = 100): 102.9 107.2 102.7 95.3 ............

Notes:
- 1/ In percent of nonhydrocarbon GDP.
- 2/ Excludes DFSF related transactions for Dubai, and 2011 ALDAR support and investment income for Abu Dhabi.
- 3/ Banking system claims only. Excludes debt raised by federal and emirati governments in the international markets.
- 5/ Excludes foreign assets of sovereign wealth funds.

### Balance of Payments — selected aggregates (Table 2 highlights, 2008–17)
- Current account balance (billions of U.S. dollars): 24.8 9.1 9.1 33.3 40.0 40.9 40.1 39.6 39.8 40.8
- Current account (percent of GDP): 7.9 3.4 3.1 9.2 10.3 10.4 9.9 9.6 9.3 9.1
- Trade balance (billions of U.S. dollars): 63.8 42.5 50.4 81.5 90.7 93.2 94.1 93.1 93.6 94.6
- Exports (billions of U.S. dollars): 240.1 192.2 211.9 279.3 307.5 320.7 335.6 346.8 359.8 376.2
  - Hydrocarbon exports: 91.4 59.6 66.8 99.6 108.8 105.5 100.9 97.5 95.6 95.2
  - Nonhydrocarbon exports: 43.0 44.0 51.0 62.1 69.4 74.3 80.4 87.2 94.9 101.6
  - Re-exports 1/: 94.2 80.1 86.2 105.6 116.1 128.0 142.3 150.9 158.7 169.3
- Imports (f.o.b.) (billions of U.S. dollars): -176.3 -149.7 -161.4 -197.8 -216.8 -227.5 -241.6 -253.7 -266.2 -281.6
- Income, net (billions of U.S. dollars): 5.4 4.2 -0.1 0.0 0.5 0.6 0.6 2.8 4.5 6.8
- Services, net (billions of U.S. dollars): -33.8 -27.4 -29.9 -36.2 -38.4 -39.6 -41.2 -42.5 -43.9 -45.6
- Transfers, net (billions of U.S. dollars): -10.6 -10.2 -11.3 -12.0 -12.9 -13.2 -13.5 -13.8 -14.3 -15.0
- Financial account balance (billions of U.S. dollars): -19.9 8.4 5.8 -17.1 -35.5 -37.3 -36.2 -36.4 -36.1 -37.4
- Overall balance (billions of U.S. dollars): -46.8 -6.0 7.3 4.6 4.5 3.6 3.8 3.2 3.7 3.5
- Change in central bank reserves (billions of U.S. dollars): 46.8 6.0 -7.3 -4.6 -4.5 -3.6 -3.8 -3.2 -3.7 -3.5
- Memorandum:
  - GDP (billions of U.S. dollars): 314.8 270.3 297.6 360.1 386.4 394.5 402.9 414.0 429.1 448.3
  - Gross reserves of central bank (billions of U.S. dollars): 30.9 25.5 32.8 36.4 40.8 44.4 48.2 51.4 55.1 58.6
  - In months of next year's imports: 2.0 1.5 1.6 1.6 1.7 1.8 1.8 1.9 1.9 1.9

Notes:
- 1/ Not separately compiled; estimated at 40 to 70 percent of emirates imports.
- 2/ Estimate based on UNCTAD World Investment Report.
- 3/ Including estimated changes in SWF net external assets.

### Consolidated government finances (Table 3 highlights, 2008–12)
- Total revenue (billions of UAE dirhams): 449.6 255.0 313.2 439.6 490.4
  - Hydrocarbon: 360.5 174.1 234.0 362.6 404.3
  - Nonhydrocarbon: 89.1 80.9 79.2 77.0 86.1
- Expense (billions of UAE dirhams): 174.4 214.2 232.8 227.8 231.2
  - of which: foreign grants: 3.6 3.3 2.6 5.6 5.9
- Gross operating balance (billions of UAE dirhams): 275.2 40.8 80.4 211.7 259.2
- Net lending(+)/borrowing(-) (billions of UAE dirhams): 245.7 -4.2 45.3 175.0 203.3
- Net acquisition of financial assets (billions of UAE dirhams): 255.6 169.3 135.5 186.1 171.7
  - of which: Dubai Financial Support Fund: ... 48.9 14.7 19.2 ...
- Net incurrence of liabilities (billions of UAE dirhams): 10.0 173.4 90.2 11.2 -31.6
- Total revenue (percent of GDP): 38.9 25.7 28.6 33.2 34.6
  - Hydrocarbon revenues (percent of GDP): 31.2 17.5 21.4 27.4 28.5
- Expense (percent of GDP): 15.1 21.6 21.3 17.2 16.3
- Gross operating balance (percent of GDP): 23.8 4.1 7.4 16.0 18.3
- Net lending(+)/borrowing(-) (percent of GDP): 21.2 -0.4 4.1 13.2 14.3
- Memorandum:
  - Nonhydrocarbon primary balance incl loans and equity; excl. investment income: -26.4 -44.3 -35.5 -41.5 -36.5
  - Nonhydrocarbon primary balance (net lending/borrowing) excl. investment income: -19.2 -27.6 -26.4 -24.3 -25.3
  - Adjusted non-hydrocarbon primary balance 4/: -26.4 -37.4 -33.6 -37.0 -36.5
  - Overall balance (in billions of UAE dirhams): 193.7 -122.4 -23.0 38.6 109.2
  - Overall balance (in percent of GDP): 16.8 -12.3 -2.1 2.9 7.7
  - Net loans and equity (in billions of UAE dirhams): 51.8 117.9 68.2 101.6 60.0
  - Net loans and equity (in percent of GDP): 4.5 11.9 6.2 7.7 4.2
  - Hydrocarbon share of revenue (in percent): 80.2 68.3 74.7 82.5 82.4
  - Nonhydrocarbon revenue, excl. investment income (in billions of UAE dirhams): 60.6 61.2 63.4 64.8 68.9

Notes:
- 4/ Excludes DFSF related transactions for Dubai, and 2011 ALDAR support and investment income for Abu Dhabi.

### Abu Dhabi and Dubai government finances (Tables 3a and 3b highlights, 2008–12)
- Abu Dhabi (billions of UAE dirhams)
  - Total revenue: 305.7 147.1 192.2 280.9 320.0 (2008–2012)
  - Hydrocarbon: 269.6 121.8 169.1 261.5 295.2
  - Expense: 105.4 139.0 159.1 182.0 180.6
  - Gross operating balance: 200.3 8.1 33.1 98.8 139.5
  - Net lending(+)/borrowing(-): 187.1 -19.5 9.4 71.5 94.7
  - Memorandum: Loans and equity net (billions of UAE dirhams): 49.7 79.8 63.3 87.9 57.5
- Dubai (billions of UAE dirhams)
  - Total revenue: 32.6 28.4 29.9 32.3 30.4
  - Nontax revenue: 25.0 21.3 22.8 24.3 23.8
  - Tax revenue: 7.6 7.1 7.1 8.0 6.6
  - Expense: 25.3 28.4 29.4 31.7 29.7
  - Gross operating balance: 7.3 0.0 0.5 0.5 0.8
  - Net acquisition of nonfinancial assets: 14.3 13.5 8.9 7.1 5.9
  - Net lending(+)/borrowing(-): -7.0 -13.5 -8.4 -6.5 -5.1
  - Memorandum: Loans and equity net: 0.0 48.9 14.7 19.2 0.0
    - of which Dubai Financial Support Fund: 0.0 48.9 14.7 19.2 0.0
    - Loan from Abu Dhabi: 0.0 12.1 11.0 9.9 0.0

### Monetary survey (Table 4 highlights, 2008–12)
- Net foreign assets (billions of UAE dirhams): 334 778 931 1,10 (table entries truncated in source)
  - Foreign assets: 317 302 354 382 401
  - Central Bank foreign assets: 114 94 121 134 150
  - Commercial banks foreign assets: 203 208 234 249 251
- Foreign liabilities: 284 255 276 290 291
- Net domestic assets: 64 169 470 733 774
- Claims on private sector: 875 881 892 912 940
- Broad money (M2) (billions of UAE dirhams): 674 741 786 826 884
  - Money: 208 223 233 264 283
  - Quasi-money: 466 517 553 562 602
  - Foreign currency deposits: 119 122 129 144 154
- Dh-denominated liquidity (memorandum): 556 619 658 682 730
- Reserve money: 37 37 39 42 45
- Key ratios:
  - Foreign currency deposits / total deposits (in percent): 18.6 17.3 17.2 18.4 18.4
  - NFA/ M2 (in percent): 4.9 6.3 10.0 11.2 12.4
  - CBU foreign assets/reserve money (in percent): 93.3 82.3 107.2 97.0 103.4
  - NFA of Central Bank: 112.2 89.7 116.7 133.4 149.9
  - NFA of commercial banks: -79.2 -42.9 -38.2 -40.9 -39.9
  - M2 velocity (nonhydrocarbon GDP): 1.1 1.0 1.0 1.0 0.9
  - Claims on private sector (annual percent change): 49.3 0.7 1.2 2.3 3.1
  - Broad money (M2) (annual percent change): 19.2 9.8 6.2 5.0 7.1

### Exchange Rate Assessment (Appendix I)
- The real exchange rate has continued depreciating. After appreciation between 2005 and 2008, the REER has been depreciating since 2009 and depreciated by a further 4 percent in 2011.
- Standard methodologies yield mixed results; no strong evidence for exchange rate misalignment:
  - Equilibrium exchange rate approach (cointegration between REER and real oil price): As of end-2011, the REER was about 10 percent undervalued.
  - Macroeconomic balance (MB) approach employing GMM in a dynamic panel, explicitly adding underground hydrocarbon wealth and estimates of accumulated foreign assets, yields little evidence of exchange rate misalignment.

*International Monetary Fund — 2012 ARTICLE IV REPORT UNITED ARAB EMIRATES (content unit _cr12116 - 42.)*

### 10.7 percent of GDP in 2017 (average of

### _cr12116 - 10.7 percent of GDP in 2017 (average of

### External Balance, Exchange Rate Assessment, and CGER Results
- Projected current account position for 2017: 9.1 percent (referred to as "projected current account position of 9.1 percent").
- Current account norm (average of four specifications): 10.7 percent of GDP in 2017 (average of four specifications ranging from 1.8 to 18.7 percent of GDP).
- Deviation from norm: reported deviations include -1.6 and -7.7 (as presented in tabulated results).
- ER over/undervaluation estimates reported: 2.6, 12.5, -10 (percent) (as shown in results table).
- Little evidence of exchange rate misalignment when comparing projected current account (9.1 percent) to the average current account norm (10.7 percent).
- External sustainability (permanent income/annuity benchmark) approach:
  - Indicates an overvaluation of the dirham.
  - Choosing a constant real per capita annuity as benchmark implies a need to accumulate further savings of about 8 percent of GDP in 2017.
- Chart and index references:
  - Real and Nominal Effective Exchange Rates, 2000–12 (Index, 2005=100). (Source: Fund staff estimates.)

### Current Account Norms vs. Projected Current Account (Annuitized Benchmarks)
- Projected Current Account (2017 proj.): 9.1 (percent of GDP).
- CA Norm (annuity constant real per capita GDP), CA Norm (annuity constant in real terms), CA Norm (annuity constant in percent of GDP) are plotted against projected current account for 2008–2017 (percent of GDP) in source charts (IMF staff calculations and projections).

### Government-Related Entities (GREs): Financial Risk and Management
- GRE role and risks:
  - GREs are important for UAE economic development and diversification but are a source of risks due to large borrowing and lack of timely aggregate information.
- Post-crisis debt restructuring:
  - Dubai World restructuring completed with authority involvement.
  - Dubai International Capital announced an agreement to restructure about $2.5 billion of its debt.
  - Restructuring of $10 billion of Dubai Group debt (part of Dubai Holding) is under discussion.
- Coordination and monitoring:
  - Dubai’s Supreme Fiscal Council monitors overall sovereign and GRE debt.
  - Abu Dhabi’s debt management office plays a similar role.
- GRE indebtedness and rollover needs:
  - Since 2010, GRE debt (including government-guaranteed debt) broadly stable in nominal terms at $185 billion, but ratio of GRE debt to GDP fell to 51 percent.
  - GRE debt remains high in international comparison.
  - Dubai GRE debt moderately decreased while Abu Dhabi’s GRE debt rose.
  - Rollover needs: $30 billion in GRE debt maturing "this year" (as stated), a multiple of maturing government debt.
  - Significant amounts of debt will mature in 2014–15, partly as a result of earlier debt restructuring.
- Refinancing challenges and vulnerabilities:
  - High dependence on foreign funding increases rollover and financing risk.
  - Vulnerability exacerbated by deleveraging of European banks that are reducing exposure to the region.
  - Credit rating agencies highlighted two 2012 maturities: DIFC Investments’ $1.25 billion sukuk maturing in June, and Jebel Ali Free Zone’s (JAFZA) $2 billion sukuk maturing in November.
- Mitigants and policy responses:
  - Nonhydrocarbon GDP growth is gradually picking up, supporting asset prices and improving GRE cash flows.
  - GREs focusing more on consolidation and deleveraging than expansion and borrowing.
  - Some GREs plan to use cash from asset sales and operational cash flow to repay maturing debt.
  - GREs actively seeking alternative investors, particularly in Asia and the Gulf region.
  - Authorities noted lenders are becoming more diligent in evaluating borrowers’ repayment capacity.
  - Example: Dubai Ports World announced intention to repay the $3 billion loan maturing in October 2012 using available cash.
- Market indicators:
  - Following a moderate increase in late 2011, sovereign and GRE CDS spreads have been coming down in 2012.
  - Chart references: UAE – Government and Selected GRE CDS Spreads (Basis points) for selected issuers including Dubai DP World, DHC, ODIFC, Emirates Airlines, Abu Dhabi (source: Markit).

### GRE Debt Levels and Composition (End-2010 / March 2012 snapshots)
- Total GRE debt (end-2010 / March 2012): 
  - US$ billion / in % of 2010 GDP / US$ billion / in % of 2011 GDP: Total GRE debt 182.3 61.2 184.8 51.3
  - Government guaranteed: 13.0 4.4 9.7 2.7
  - Other: 169.3 56.9 175.2 48.6
- Abu Dhabi GRE debt (end-2010 / March 2012):
  - 92.9 55.0 100.6 45.6
  - Government guaranteed: 0.5 0.3 1.4 0.6
  - Other: 92.4 54.8 99.2 45.0
- Dubai GRE debt (end-2010 / March 2012):
  - 89.4 69.4 84.3 60.4
  - Government guaranteed: 12.5 9.7 8.3 5.9
  - Other: 76.9 59.7 76.0 54.4
- Sources: Dealogic; and WEO; U.A.E. authorities; Fund staff estimates.

### Maturing Debt Profiles and Exposure (Selected Tables and Aggregates)
- Aggregate Dubai Inc. maturing debt (in millions of U.S. dollars) and totals presented by issuer and year (2012–2015 and Beyond). Example aggregates:
  - Total Dubai Inc. maturing debt (2012–Beyond): 12,891 5,978 8,649 12,077 37,871 77,466 (row labeled "Total Dubai Inc." in table).
  - Total Dubai Debt (2012–Beyond): 14,641 9,447 31,008 12,577 43,327 129,027 (row labeled "Total Dubai Debt").
- Memorandum items for Dubai:
  - Restructured Debt: 0 0 5,400 0 10,005 15,100 30,505 (as presented).
  - Government guaranteed 7/: 648 4,503 21,959 1,248 6,675 53,059 (as presented).
- Aggregate Abu Dhabi maturing debt (in millions of U.S. dollars) and totals presented by issuer and year (2012–2015 and Beyond). Example aggregates:
  - Total Abu Dhabi Inc. (2012–Beyond): 15,796 18,302 15,729 4,806 44,555 99,188
  - Total Abu Dhabi Debt (2012–Beyond): 17,202 18,848 17,762 5,340 49,136 108,288
- In percent of Emirate 2011 GDP examples:
  - Total Abu Dhabi Debt: 7.8 8.5 8.1 2.4 22.3 49.1 (percent of Abu Dhabi 2011 GDP, as shown).
  - Total Dubai Debt: 10.5 6.8 22.2 9.0 31.0 92.4 (percent of Dubai and NE 2011 GDP, as shown).
- Notes and assumptions referenced in tables are preserved as presented (e.g., assumptions about DEWA securitization, Abu Dhabi support drawing).

### Fund Relations, Statistical and Institutional Annex Highlights (As of April/March 2012)
- Fund membership and quota:
  - Membership Status: Joined 9/22/72; accepted Article VIII status in February 1974.
  - Quota: 752.5 (SDR Million) representing 100.00 percent of quota.
  - Fund holdings of currency: 514.46 (SDR Million) 68.37 percent of quota.
  - Reserve position in Fund: 238.62 (SDR Million) 31.71 percent of quota.
- SDR Department:
  - Net cumulative allocation: 568.41 (SDR Million) 100.00 percent allocation.
  - Holdings: 541.89 (SDR Million) 95.33 percent.
- Outstanding purchases and loans: None.
- Latest financial arrangements: None.
- Projected Payments to Fund (Forthcoming 2012–2016):
  - Charges/interest: 0.04 0.05 0.05 0.05 0.05
  - Total: 0.04 0.05 0.05 0.05 0.05
- Exchange arrangement:
  - Dirham pegged de jure to the U.S. dollar with mid-point fixed at AED 3.6725 = US$1.
  - Historical peg: pegged to the SDR at AED 4.76190 = SDR1 from November 1980 to February 2002 (de facto pegged to the dollar at a fixed parity).
- Article IV Consultation:
  - UAE on annual consultation cycle.
  - Previous consultation discussions held during February 27-March 7, 2011.
  - Article IV concluded on a Lapse of Time basis on April 27, 2011.
- Technical assistance and FSAP:
  - FSAP missions visited the UAE in 2003 and 2007.
  - Selected TA missions and topics listed with dates (e.g., FAD Public Expenditure Management Follow up May 2003; MCM Macroprudential Tools and Liquidity Management January 2011; STA National Accounts September 2011; MCM Payment Systems November 2011).

*Source: IMF staff estimates, projections, and the UNITED ARAB EMIRATES 2012 ARTICLE IV REPORT and Informational Annex (April/March 2012).*

### ANNEX III. STATISTICAL ISSUES

### ANNEX III. STATISTICAL ISSUES

### I. Assessment of Data Adequacy for Surveillance
- General assessment: Data provision is broadly adequate for surveillance, but there are substantial shortcomings on the accounts of government-related corporations. In particular, there is limited data on GRE debt and contingent liabilities to the government.
- Institutional developments:
  - Adoption of the Federal Statistics Law on May 18, 2009, and establishment of an independent National Bureau of Statistics (NBS).
  - Law requires all agencies and local statistical centers to provide data as required by the NBS; success will depend on implementing arrangements, staffing, funding and training.
  - Federal and individual emirates’ agencies have improved availability and quality of statistics, but more progress is needed.
- National Accounts:
  - Methodology broadly conforms to the 1968 SNA.
  - GDP is compiled annually with a lag of around 12 months.
  - Further work needed to improve updating procedures; quarterly indicators are not available.
- Price statistics:
  - Following IMF technical assistance, the Ministry of Economy started publishing a monthly CPI since January 2008.
  - Price indexes and GDP deflators need further harmonization at the federal level.
- Government finance statistics:
  - In 2008, six of the seven emirates and the federal government received technical support in the compilation of fiscal data on a consolidated basis, using the GFSM 2001 format and 2008 as a base year.
  - In 2011, GFSM 2001 was introduced by the federal and several emirate governments; institutional arrangement to ensure adequate data provision was established.
  - Consolidation should complement initiatives to establish debt management units at both the emirate and federal levels.
- Monetary statistics:
  - Central bank shifted responsibility for compiling and disseminating monetary data to the Banking Supervision and Examination Department to improve timeliness to monthly frequency with less than a month lag.
  - Some monthly aggregates and FSIs are published monthly, but the Banking Supervision and Examination Department has not been trained in MFSM 2000 and the published data do not follow the recommended methodology.
- Balance of Payments (BoP) and International Investment Position (IIP):
  - Information needed to compile the balance of payments is insufficient, especially for the financial account.
  - Many components of the IIP are missing or incomplete; data on government foreign assets and private holdings of foreign assets and liabilities are not published or lack appropriate surveys.
  - Development of a comprehensive BoP and IIP is within reach if the central bank, the NBS, and the Ministry of Economy strengthen capacity and receive appropriate high-level support.
  - The authorities have indicated interest in IMF technical assistance.

### II. Data Standards and Quality
- Participation and metadata:
  - Participant in the GDDS since July 31, 2008.
  - Metadata last updated in 2008 for Monetary and BOP; 2008 for National Accounts and Prices; and 2008 for Government Finance.
- No Data ROSC is available.
- Table of Common Indicators Required for Surveillance (As of April 6, 2012) — selected observations and reporting frequencies:
  - Exchange Rates: Date of latest observation — Real time; Date received — Real time; Frequency of Data — D; Frequency of Reporting — M; Frequency of Publication — M.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation — 12/11; Date received — 2/12; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M.
  - Reserve/Base Money: 12/11; 2/12; M; M; M.
  - Broad Money: 12/11; 2/12; M; M; M.
  - Central Bank Balance Sheet: 12/11; 2/12; M; M; M.
  - Consolidated Balance Sheet of the Banking System: 12/11; 2/12; M; M; M.
  - Interest Rates: Date of latest observation — Real time; Date received — Real time; Frequency of Data — D; Frequency of Reporting — D; Frequency of Publication — D.
  - Consumer Price Index: Date of latest observation — 02/12; Date received — 3/12; M; M; M.
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation — 12/11; Date received — 3/12; Frequency of Data — A; Frequency of Reporting — A; Frequency of Publication — A.
  - Stocks of Central Government and Central Government-Guaranteed Debt: 12/11; 03/12; A; A; A.
  - External Current Account Balance: 2011; 3/12; A; A; A.
  - Exports and Imports of Goods and Services: 2011; 3/12; A; A; A.
  - GDP/GNP: Date of latest observation — 2010; Date received — 1/12; A; A; A.
  - Gross External Debt: ... ; ... ; NA; NA; NA.
  - International Investment Position: ... ; ... ; NA; NA; NA.
- Footnotes (as provided):
  - Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by means as well as the national values of derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
  - Both market-based and officially determined interest rates, including discount rates, money market rates, and rates on treasury bills, notes and bonds.
  - Revenue financing sources include foreign, domestic bank, and domestic nonbank financing.
  - Stocks of central government debt include currency and maturity composition.
  - International Investment Position includes external gross financial asset and liability positions vis-à-vis nonresidents.
  - Frequency codes: Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I): Not Available (NA).

### Public Information Notice (PIN) — IMF Executive Board Conclusions (May 14 and May 16, 2012)
- Macroeconomic developments:
  - Estimated real GDP growth of 4.9 percent in 2011.
  - Real nonhydrocarbon growth estimated at 2.7 percent in 2011, supported by trade, logistics, and tourism.
  - For 2012: oil production projected to be flat; nonoil growth expected to strengthen to 3.5 percent.
  - Inflation remained low at 0.9 percent in 2011, mainly due to a continuing decline in housing rents; price pressures expected to remain subdued in 2012.
- GREs and fiscal risks:
  - Dubai World debt restructuring was completed; several other troubled government-related entities (GRE) remain in the process of restructuring.
  - GRE indebtedness, refinancing needs and reliance on foreign funding remain high, with about $30 billion GRE debt maturing this year and significant amounts of debt falling due in 2014–15.
- Banking and monetary stance:
  - Accommodative monetary stance under the peg to the U.S. dollar continued.
  - Lending to the private sector has remained sluggish due to excess capacity in the real estate sector and the debt overhang.
  - Banking sector remained well-capitalized and profitable despite a continued rise in nonperforming loans and higher provisioning.
- Executive Board assessment and recommendations:
  - Directors welcomed continued recovery and favorable near-term outlook, but noted downside risks from the uncertain global environment and regional geopolitical tensions.
  - Encouraged authorities to sustain growth and diversify the economy while maintaining macroeconomic and financial stability.
  - Fiscal stance viewed as appropriately focused on gradual consolidation to unwind large fiscal stimulus without undermining recovery; welcomed consolidation plans in Dubai to improve debt sustainability.
  - Emphasized careful management of public expenditure composition given recent federal salary hike and planned increases in development spending in Abu Dhabi.
  - Agreed that accommodative monetary stance under the peg counters fiscal tightening and supports recovery; exchange rate peg continues to serve as an effective nominal anchor.
  - Stressed need for further efforts to mitigate fiscal risks posed by GREs: encouraged deleveraging, strengthening impaired GRE balance sheets, increased transparency, and improvements in corporate governance at GREs.
  - Encouraged close monitoring of individual banks and avoidance of channeling bank funding to non-viable GREs; welcomed recent introduction of aggregate lending limits to GREs.
  - Suggested further strengthening of governance framework for the financial sector and development of domestic debt markets to support banks’ liquidity management in preparation for Basel III liquidity framework.
  - Welcomed authorities’ efforts to strengthen the statistical base, including plans for improving national accounts, balance of payments, fiscal accounts, and labor market statistics.

### United Arab Emirates: Selected Macroeconomic Indicators, 2008–12 (Est. / Proj.)
- Output and prices (annual percent change unless otherwise indicated):
  - Nominal GDP (billions of UAE dirhams): 1,156 (2008); 993 (2009); 1,093 (2010); 1,323 (2011); 1,419 (2012).
  - Nominal GDP (billions of U.S. dollars): 315 (2008); 270 (2009); 298 (2010); 360 (2011); 386 (2012).
  - Real GDP (at factor cost): 5.3 (2008); -3.3 (2009); 0.9 (2010); 4.9 (2011); 2.3 (2012).
  - Real oil and gas GDP: 1.6 (2008); -9.9 (2009); -1.5 (2010); 9.2 (2011); 0.0 (2012).
  - Real non-oil GDP: 6.3 (2008); 0.6 (2009); 2.1 (2010); 2.7 (2011); 3.5 (2012).
  - CPI inflation (average): 12.3 (2008); 1.6 (2009); 0.9 (2010); 0.9 (2011); 1.5 (2012).
- Public finances (percent of GDP, unless otherwise indicated):
  - Revenue: 39.0 (2008); 25.7 (2009); 28.7 (2010); 33.3 (2011); 34.6 (2012).
  - Hydrocarbon revenue: 31.2 (2008); 17.5 (2009); 21.4 (2010); 27.4 (2011); 28.5 (2012).
  - Non-hydrocarbon revenue: 7.9 (2008); 8.2 (2009); 7.2 (2010); 5.9 (2011); 6.1 (2012).
  - Expenditure and net lending: 22.3 (2008); 38.0 (2009); 30.8 (2010); 30.4 (2011); 26.9 (2012).
  - Budget balance: 16.8 (2008); -12.3 (2009); -2.1 (2010); 2.9 (2011); 7.7 (2012).
  - Non-hydrocarbon balance (percent of non-hydrocarbon GDP): -22.9 (2008); -42.0 (2009); -34.3 (2010); -41.0 (2011); -35.2 (2012).
- Monetary sector (annual percent change):
  - Credit to private sector: 49.3 (2008); 0.7 (2009); 1.2 (2010); 2.3 (2011); 3.1 (2012).
  - Broad money: 19.2 (2008); 9.8 (2009); 6.2 (2010); 5.0 (2011); 7.1 (2012).
- External sector (billions of U.S. dollars, unless otherwise indicated):
  - Exports of goods: 240 (2008); 192 (2009); 212 (2010); 279 (2011); 307 (2012).
  - Oil and gas exports: 103 (2008); 68 (2009); 75 (2010); 112 (2011); 122 (2012).
  - Imports of goods: -176 (2008); -150 (2009); -161 (2010); -198 (2011); -217 (2012).
  - Current account balance: 24.8 (2008); 9.1 (2009); 9.1 (2010); 33.3 (2011); 40.0 (2012).
  - Current account balance (percent of GDP): 7.9 (2008); 3.4 (2009); 3.1 (2010); 9.2 (2011); 10.3 (2012).
  - Gross official reserves: 30.9 (2008); 25.5 (2009); 32.8 (2010); 36.4 (2011); 40.8 (2012).
  - In months of next year imports of goods and services: 2.0 (2008); 1.5 (2009); 1.6 (2010); 1.6 (2011); 1.7 (2012).
  - Real effective exchange rate (2000=100): 102.9 (2008); 107.2 (2009); 102.7 (2010); 95.3 (2011); .. (2012).
- Sources noted in the original: UAE authorities; and IMF staff estimates.
- Projection note: Projections are based on information received through November 2009.

### Statement by Mr. Shaalan, Executive Director for the United Arab Emirates (May 14, 2012)
- Overview:
  - UAE has weathered the global economic and financial crisis well due to strong fundamentals and timely policy responses.
  - Increase in hydrocarbon prices and production supported recovery; non-oil sectors (trade, tourism) gaining momentum, offsetting slowdown in construction and real estate.
  - Authorities committed to sustaining growth and diversifying the economy while maintaining macroeconomic and financial stability.
- Fiscal consolidation:
  - Fiscal policy shifting from expansionary to gradual consolidation to avoid undermining recovery and to widen fiscal space against downside risks (such as decline in oil prices).
  - Government of Abu Dhabi to start implementing fiscal consolidation plan in 2012 after completing review of development strategy.
  - Dubai plans to further cut public spending and balance fiscal accounts by 2014.
  - Authorities considering initiatives to reduce dependence on hydrocarbon revenues, including introduction of a value-added tax in the context of a GCC-wide initiative and a corporate income tax.
  - Fiscal Policy Coordination: Fiscal Coordination Council (FCC) facilitates information exchange between federal and emirate governments; authorities plan to extend FCC’s role to coordinating fiscal policy among different tiers of government and have requested Fund technical assistance.
  - Government Related Entities (GREs): Dubai World restructuring completed; several other GREs in restructuring; GRE risk management being strengthened; Abu Dhabi publishing list of companies supported by it; Dubai clarified that Dubai GREs are not backed by sovereign guarantees. Department of Finance and Supreme Fiscal Committee play major roles in Dubai GRE debt monitoring and approval of new borrowing.
- Financial sector policies:
  - Financial sector resilient due to central bank’s regulation and macroprudential policies; banking sector highly capitalized and profitable, though private sector credit growth remains sluggish.
  - Central Bank measures: providing liquidity, guaranteeing deposits, encouraging bank capitalization; will continue to monitor capital adequacy and liquidity, especially for banks vulnerable under severe stress test scenarios.
  - Central Bank initiatives: developing domestic capital markets; launched a repurchase facility for Islamic certificates of deposit; strengthened banking regulations by tightened limits on large exposures and caps on loans to local governments and related entities.
  - Spillover effects: Authorities appreciate staff’s work on global spillovers; share view that financial vulnerabilities decreased since 2008 real estate problems; central bank remains vigilant to cross-border and domestic interbank exposures and stands ready to take remedial actions.
  - Authorities look forward to forthcoming Financial Sector Stability Assessment in 2012.
- Other reforms:
  - Federal government will further improve business environment to attract foreign investment; tourism remains a priority to diversify the economy.
  - Labor policy to focus on increasing employment of Emiratis in the private sector.
  - Abu Dhabi capital spending plan on tourism, health, infrastructure, and renewable energy projects intended to support recovery and create jobs for UAE citizens.
  - Authorities committed to continue progress in improving quality and coverage of economic statistics: established the National Bureau of Statistics and Debt Management Offices; will continue to improve compilation and dissemination of national, fiscal, and external accounts.

*Source: ANNEX III. STATISTICAL ISSUES (As of April 10, 2012) from _cr12116 - ANNEX III. STATISTICAL ISSUES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12116.pdf_