Washington, DC:
A staff team from the International Monetary Fund (IMF), led by Mr. Ali
Al-Eyd, held virtual discussions with the UAE authorities for the 2021
Article IV Consultation from September 14 - 28, 2021. At the conclusion of
the mission, Mr. Al-Eyd issued the following statement:
“The UAE moved quickly to address the health and economic effects of the
COVID-19 pandemic, and the economic recovery has begun to strengthen.
Vaccinations cover nearly 95 percent of UAE nationals and other residents
with at least one dose.
“As in other oil exporting economies, the twin shocks of COVID-19 and oil
price declines resulted in a deep, but temporary, recession. GDP is
estimated to have contracted by 6.1 percent in 2020, reflecting declines of
6 percent in oil GDP and 6.2 percent in non-oil GDP. Dampened global
demand, lower oil prices, and reduced oil production under the OPEC+
agreement weighed on the fiscal and external balances compared to the
previous year.
“Looking ahead, a gradual recovery is expected in 2021, 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, set to begin in October. We expect non-oil GDP growth to
exceed 3 percent this year, and to improve further in the medium-term,
while oil GDP will continue to grow with increased production. Higher oil
prices will lift the fiscal and external balances.
“Nevertheless, uncertainty around the recovery remains globally and in the
UAE, and the overall balance of risks is tilted towards the downside, with
a resurgence of the pandemic the key source of risk to the outlook.
However, the UAE’s strong reform momentum provides an upside risk to
growth.
“For the recovery to be sustained, protecting public health through
continued strong vaccination and testing efforts for all nationals and
residents remains the top priority. The current macroeconomic policy mix
remains appropriate. Going forward, however, support measures should be
increasingly targeted to viable sectors and firms and supporting people
most in need. New fiscal stimulus and structural reforms, such as those to
attract highly skilled professionals, support private sector employment,
increase trade and foreign investment, and harness the benefits of
technology should be prioritized and sequenced to ensure their efficiency
and effectiveness, ensuring sustainable and inclusive growth outcomes.
“The swift and substantial policy response and the clear and proactive
communication by the Central Bank of the United Arab Emirates have been
critical throughout the crisis. Liquidity and capital in the banking system
remain strong. However, corporate credit growth remains subdued, though
retail lending has picked-up, and banks’ asset quality has weakened
somewhat. Further impact on banks’ balance sheets, including from the
COVID-19 crisis, may still lie ahead. Ensuring financial stability through
continued monitoring of risks will further enhance resilience of the
financial system. Ongoing efforts to strengthen macroprudential and
regulatory frameworks will further support these efforts.
“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.
“Looking to the medium-term, to ensure a smooth adjustment to an
environmentally sustainable global economy, reform efforts will be needed
to deliver sustainable fiscal outcomes and intergenerational equity. This
requires a gradual, but marked, fiscal consolidation in the context of a
credible medium-term fiscal framework. 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 UAE’s ambitious 50-year reform agenda holds considerable promise to
deliver higher levels of future diversified and inclusive economic growth.
This comes at an important moment for the UAE as it celebrates its Golden
Jubilee and looks to leverage its talent, knowledge base, and vision for
sustainable and smarter future growth. Achieving this outcome requires
careful prioritization and sequencing of reforms, enhanced integration of
strategies and policies at different levels of government and finding a
productive approach to enhancing collaboration and cooperation across the
individual emirates. Ensuring timely collection and dissemination of
economic data will buttress these efforts.
“The IMF team would like to express its appreciation to the authorities and
other stakeholders for the open and fruitful discussions.
