IMF Staff Completes 2019 Article IV Mission to the United Arab Emirates

IMF News, November 6, 2019

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IMF team led by Mr. Koshy Mathai visited the UAE from October 22 to November 5, 2019, to conduct discussions for the 2019 Article IV Consultation.
Press release date: November 6, 2019.
Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

“Following a challenging period, the economy is recovering.”
Non-oil growth projections:
- “Non-oil growth could exceed 1 percent in 2019.”
- “Non-oil growth could … pick up to around 3 percent next year, the fastest since 2016, on the back of Expo 2020 and fiscal stimulus.”
Overall GDP growth projection:
- “Overall GDP growth would register 2.5 percent in 2020.”
Near-term policy stance:
- “Given current economic conditions, the authorities’ existing stimulus is appropriate.”

Two principal priorities discussed with the authorities:
- (i) promoting the growth of the non-oil private sector, including small and medium enterprises (SMEs);
- (ii) strengthening fiscal frameworks to ensure both sufficient saving of oil wealth for future generations and smoothing of short-term fluctuations.
Longer-term context:
- Need to diversify for a post-oil future given “the likelihood that global oil demand will slow in the face of technological advances as well as policy responses to climate change.”

Authorities have taken steps including adopting an FDI law allowing “100-percent foreign ownership in selected sectors,” and reducing or eliminating fees and penalties.
Mission welcomes implementation of a comprehensive national SME development strategy and recommends particularly:
- (i) lowering startup costs;
- (ii) operationalizing the new insolvency framework;
- (iii) promoting greater financial inclusion.
Institutional recommendation:
- Establish a single agency responsible for SME promotion, “with any possible costs to the budget recorded transparently.”

Measures to support private-sector development while mitigating risk:
- Keep real-estate and construction exposures under prudential control.
- Bring noncompliant large exposures down to below prudential limits.
- Establish a track record of enforcement under the new anti-money laundering/combating the financing of terrorism (AML/CFT) framework.
- Harness fintech—subject to stability considerations—to improve intermediation and financial inclusion.
- Develop a benchmark yield curve.
Mission welcomes the authorities’ request for a Financial Sector Assessment Program (FSAP) once the new banking law has been fully implemented.

Reduce the footprint of government-related entities (GREs) in nonstrategic sectors to promote competition and enhance private-sector growth.
In line with the Emiratization agenda:
- Strengthen incentives for private employment.
- Address public-sector compensation and benefits.

Need for a fiscal framework that enshrines a commitment to savings, noting current savings are “below the level required to preserve wealth for future generations.”
Framework design principles:
- Balance short- and long-term objectives.
- Center frameworks around long-term fiscal anchors while allowing flexibility to smooth short-run oil price fluctuations and the non-oil business cycle.
- Develop transparent, rules-based fiscal frameworks.
Complementary measures:
- Better monitoring and analysis of GRE-related contingent liabilities.
- Establish supportive institutions like independent and technocratic fiscal councils to provide impartial advice and ensure proper implementation.

“The IMF team would like to express its appreciation to the authorities and other stakeholders for their hospitality and thoughtful discussions.”

IMF Staff statement following the 2019 Article IV mission to the United Arab Emirates (press release dated November 6, 2019).