IMF Staff Completes 2021 Article IV Mission to the United Arab Emirates

IMF News, September 30, 2021

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IMF staff team led by Mr. Ali Al-Eyd held virtual discussions with the UAE authorities for the 2021 Article IV Consultation from September 14 - 28, 2021.
End-of-Mission press release date: September 30, 2021.
Statement conveys preliminary findings of IMF staff and does not necessarily represent the views of the IMF’s Executive Board.

The economic recovery has begun to gain momentum, helped by the UAE’s early and strong response to the Covid-19 pandemic, successful vaccination program, increased tourism, and activity related to the delayed Expo 2020.
Vaccinations cover nearly 95 percent of UAE nationals and other residents with at least one dose.
The delayed Expo 2020 is set to begin in October.

2020 GDP contraction: estimated to have contracted by 6.1 percent.
- Oil GDP decline in 2020: 6 percent.
- Non-oil GDP decline in 2020: 6.2 percent.
Drivers of 2020 weakness: dampened global demand, lower oil prices, and reduced oil production under the OPEC+ agreement, which weighed on fiscal and external balances.
2021 expectations:
- A gradual recovery is expected in 2021, supported by health response, supportive macroeconomic policies, and rebound in tourism and Expo-related domestic activity.
- Non-oil GDP growth is expected to exceed 3 percent in 2021.
- Oil GDP will continue to grow with increased production.
- Higher oil prices will lift the fiscal and external balances.

Overall balance of risks is tilted towards the downside.
- Key downside risk: resurgence of the pandemic.
Upside risk: the UAE’s strong reform momentum provides an upside risk to growth.
Uncertainty remains globally and in the UAE.

Public health:
- Protecting public health through continued strong vaccination and testing efforts for all nationals and residents remains the top priority.
Macroeconomic policy:
- The current macroeconomic policy mix remains appropriate.
- Going forward, support measures should be increasingly targeted to viable sectors and firms and supporting people most in need.
- New fiscal stimulus and structural reforms should be prioritized and sequenced to ensure efficiency and effectiveness, ensuring sustainable and inclusive growth outcomes.
Structural reform priorities mentioned:
- Attract highly skilled professionals.
- Support private sector employment.
- Increase trade and foreign investment.
- Harness the benefits of technology.
Fiscal framework and consolidation:
- To deliver sustainable fiscal outcomes and intergenerational equity, a gradual, but marked, fiscal consolidation in the context of a credible medium-term fiscal framework is required.
- Given the UAE’s decentralized fiscal structure, emirate-specific fiscal anchors should first be enhanced and then carefully coordinated to ensure a unified national fiscal stance.

The swift and substantial policy response and proactive communication by the Central Bank of the United Arab Emirates have been critical throughout the crisis.
Banking system:
- Liquidity and capital in the banking system remain strong.
- Corporate credit growth remains subdued.
- Retail lending has picked-up.
- Banks’ asset quality has weakened somewhat.
- Further impact on banks’ balance sheets, including from the COVID-19 crisis, may still lie ahead.
Recommendation: continued monitoring of risks to ensure financial stability and enhance resilience; ongoing efforts to strengthen macroprudential and regulatory frameworks should continue.

Major efforts have been undertaken to further enhance the AML/CFT regime, including under the guidance of the National AML/CFT Strategy and action plan, and should be continued.
For successful implementation of the 50-year reform agenda, careful prioritization and sequencing of reforms, enhanced integration of strategies and policies at different levels of government, and productive collaboration across individual emirates are required.
Ensuring timely collection and dissemination of economic data will buttress reform efforts.

The IMF team expressed appreciation to the authorities and other stakeholders for open and fruitful discussions.

IMF staff press release, September 30, 2021.