IMF Executive Board Concludes the 2021 Article IV Consultations with the United Arab Emirates

IMF News, February 17, 2022

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The IMF Executive Board concluded the 2021 Article IV consultation with the United Arab Emirates on November 22, 2021.
The UAE moved quickly to address the health and economic effects of the pandemic, achieving vaccination rates "among the highest globally."
Fiscal and macro-financial support provided relief to hard-hit sectors, SMEs, those in need, and the financial system; some measures have been extended.
The economic recovery is gaining momentum, supported by the UAE’s early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020.

Overall GDP growth is projected at 2.2 percent in 2021, driven by non-oil growth of 3.2 percent.
Real oil GDP growth is expected to be close to zero this year in line with the OPEC+ agreement.
Over the medium-term, growth is expected to accelerate with the benefit of structural reform efforts, increased foreign investment, and rising oil production.
CPI inflation (average) projections: 0.6 for 2021 and 3.5 for 2022 (see Selected Economic Indicators).

The overall fiscal deficit is projected to narrow to 0.7 percent of GDP in 2021 and shift into a small surplus by 2024.
Improvements reflect revenue gains from current and expected higher oil prices and stronger economic growth alongside modest fiscal reform efforts.
Current account balance is projected to increase to 10.0 percent of GDP in 2021, and remain positive at around 8.5 percent of GDP in the medium-term.
Gross general government debt: 27.1 (2019), 39.4 (2020), 39.3 (2021).
Gross official reserves (billions of U.S. dollars): 108.4 (2019), 120.3 (2020), 134.5 (2021).
In months of next year's imports of goods & services, net of re-exports: 7.6 (2019), 7.9 (2020), 8.3 (2021).

Banks remain adequately capitalized, though asset quality has decreased somewhat and further balance sheet vulnerabilities, including from the COVID-19 crisis, may still lie ahead.
Directors called for continued monitoring of financial stability risks and digitalization challenges, including through strengthened macroprudential and regulatory frameworks.
A Financial Sector Assessment Program update would be useful.
Directors welcomed the new Dirham monetary policy framework which would help enhance monetary policy transmission.
Directors encouraged strong coordination between the government and the Central Bank of the United Arab Emirates to facilitate domestic capital market development.
Directors welcomed the progress made with the AML/CFT framework and encouraged the authorities to sustain the reform momentum.

Strong reform efforts are underway with the ambitious UAE 2050 Strategy.
Recent reforms to promote private sector growth and development are important to strengthen non-oil growth, boost productivity, and attract foreign investment.
Directors encouraged:
- Maintaining accommodative policies until the recovery is fully entrenched.
- Ensuring public health and supporting the most vulnerable remain top priorities.
- Implementing a gradual, targeted, and growth-friendly fiscal consolidation once the recovery is established, embedded in a credible medium-term framework.
- Careful coordination of emirate and federal fiscal anchors and enhanced dissemination of their data to improve transparency and governance.
- Strengthening collaboration, coordination and information sharing with government-related entities.
- Prioritization and well-sequencing of reform efforts to lift productivity and potential growth and facilitate economic diversification.
- Continued labor market reforms, including to raise female participation.
- Strengthening the economy’s resilience to oil shocks.
- Accelerating climate change mitigation measures and adaptation plans.
- Enhanced collaboration across federal agencies and individual emirates and further improvements in coverage, timeliness, and availability of data and statistics.

Output and prices (Annual percent change)

Public finances (Percent of GDP)

Revenue: 31.1 (2019); 27.9 (2020); 30.7 (2021); 30.9 (2022, proj.)
Expenditures: 30.5 (2019); 33.0 (2020); 31.4 (2021)
Net lending(+)/borrowing(-) (Revenue minus expenditures): -5.1 (2019); -0.7 (2020); -0.2 (2021)
Nonoil primary balance 1/: -23.7 (2019); -25.1 (2020); -26.7 (2021); -26.1 (2022, proj.)
Gross general government debt: 27.1 (2019); 39.4 (2020); 39.3 (2021)

Monetary sector

External sector (In percent of GDP, unless otherwise indicated)

Current account balance: 8.9 (2019); 5.8 (2020); 10.0 (2021); 9.8 (2022, proj.)
External debt: 81.7 (2019); 106.7 (2020); 99.9 (2021); 98.1 (2022, proj.)
Gross official reserves (billions of U.S. dollars) 2/: 108.4 (2019); 120.3 (2020); 134.5 (2021)
In months of next year's imports of goods & services, net of re-exports: 7.6 (2019); 7.9 (2020); 8.3 (2021)

Sources: Country authorities; and IMF staff estimates and projections.
Notes:
- 1/ In percent of nonoil GDP. Excludes staff estimates of SWF investment income.
- 2/ Excludes staff estimates of foreign assets of sovereign wealth funds; includes the 2021 SDR allocation of SDR 2.2 billion.

Source: Press Release No. 22/43, IMF Communications Department, February 17, 2022.