IMF Staff Concludes Visit to United Arab Emirates

IMF News, January 23, 2025

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Near-term growth is strong and expected to remain healthy at around 4 percent in 2025.
Non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services.
Hydrocarbon GDP is expected to grow above 2.0 percent this year, following OPEC+ decisions to sustain production cuts, and as the UAE implements a more gradual OPEC+ quota increase.
Inflation is expected to remain contained around 2.0 percent in 2025 despite higher housing and utilities-related costs.
Capital inflows remain strong and contribute to ongoing demand for real estate, driving further growth in house prices across different segments and locations.

Hydrocarbon revenue is expected to decline amid volatile oil prices and reduced oil production.
The fiscal surplus is expected to moderate to around 4 percent of GDP in 2025 from an estimated 5 percent of GDP last year.
Non-hydrocarbon revenue is projected to increase steadily in the coming years with the ongoing implementation of the corporate income tax.
Public debt remains contained at around 30 percent of GDP.
The current account surplus is projected at around 7.5 percent of GDP.
International reserves are healthy at over 8.5 months of imports.

Banks are adequately capitalized and liquid overall.
Asset quality further improved in 2024.
Robust domestic activity and resilient demand for credit has supported banks’ profitability amid still-elevated interest rates.
Banks’ exposure to the real estate sector has declined by 4 percentage points to 19.6 during the period December 2021 to September 2024.
Risks associated with continued increasing house prices should continue to be closely monitored.
Ongoing improvements to the AML/CFT framework and progress under the Financial Stability Council are welcome and should be continued.
Regulation and supervision of crypto-related activities should evolve in line with market developments.
Greater transparency and communication on the monetary framework and operations supports liquidity management and local capital market development.

The outlook is subject to heightened global uncertainty.
Turbulent external conditions—resulting from geopolitical and policy uncertainties—could tighten global financial conditions, weaken global growth, and increase oil price volatility, impacting UAE fiscal and external balances and raising risks to domestic activity and financial markets.
Substantial financial buffers help mitigate short-term risks.
Ongoing reforms and large investment in infrastructure and AI should lift productivity, posing upside medium-term growth risks.

Prioritization and sequencing of reforms are key to ensure effective outcomes for medium-term growth and a smooth energy transition.
Ongoing infrastructure investments should enhance tourism and domestic activity.
Ongoing trade liberalization, underpinned by Comprehensive Economic Partnership Agreements, should further boost trade and FDI.
Advancing a medium-term fiscal framework would ensure a coordinated national fiscal stance, promote long-term sustainability, and help meet climate change-related challenges.
Continued progress in improving economic data collection and dissemination will reinforce reform efforts.

IMF Staff Concludes Visit to United Arab Emirates, January 23, 2025.