Abu Dhabi, UAE:
A staff team from the International Monetary Fund (IMF), led by Mr. Ali
Al-Eyd, held discussions with the UAE authorities for the 2022 Article IV
Consultation from November 2 - 17, 2022. At the conclusion of the mission,
Mr. Al-Eyd issued the following statement:
“Economic growth has been robust this year, led by a strong rebound in
tourism, construction, and activity related to the Dubai World Expo, as
well as higher oil production in line with the OPEC+ production agreements.
Overall, GDP growth is projected to reach above 6 percent in 2022,
improving from 3.8 percent in 2021. Inflation has risen with global trends
and is expected to average just over 5 percent this year. Fiscal and
external surpluses have increased further, benefiting from the higher oil
prices as well as the removal of the temporary COVID-crisis related fiscal
support to businesses and households as the pandemic has gradually waned.
Increased global uncertainty led to larger financial inflows, contributing
to rapid real estate price growth in some segments.
“Looking ahead, the UAE economic outlook remains positive, supported by
domestic activity. We expect non-hydrocarbon growth to be around 4 percent
in 2023 and to accelerate over the medium-term with the implementation of
ongoing reforms. Inflationary pressures are projected to moderate
gradually, including from the impact of tightening financial conditions.
Further development of domestic capital markets, including through the
issuance of local currency debt by the federal government will also support
growth.
“Nevertheless, the outlook is subject to significant external
uncertainties, including the impacts of global economic and financial
headwinds, geopolitical developments, and the recently announced OPEC+
production cuts. However, higher oil prices and healthy fiscal buffers help
mitigate risks, while enhancing reform efforts would pose upside risks to
medium-term growth.
“Given the macroeconomic outlook, near-term policies should focus on
ensuring sustainable growth and maintaining financial stability, while
guarding against inflationary outcomes. In this connection, we welcome the
targeting of temporary fiscal support to the most vulnerable to alleviate
the impact from higher inflation but note the importance of maintaining a
prudent overall fiscal stance, supporting efforts to mitigate inflation,
and enhancing buffers to ensure medium-term sustainability.
“Banks have adequate capital overall and abundant liquidity, and asset
quality has improved modestly from pandemic-era peaks. Domestic private
sector credit growth has improved. Real estate price developments and
expected further tightening of financial conditions underscore the
importance of continued close monitoring of financial stability. We welcome
continued efforts by the Central Bank of the United Arab Emirates to
strengthen the macro-prudential framework and promote the effective
management of non-performing loans.
“Major efforts have been advanced under the National AML/CFT Strategy and
Action Plan to further strengthen the regulatory regime to ensure its
effectiveness, in line with the enhanced monitoring under the Financial
Action Task Force recommendations and should be continued.
“Looking to the medium-term, we welcome the planned fiscal reforms,
including the expected introduction of a corporate income tax and gradual
phasing out of business fee structures. These should be further advanced to
underpin a gradual, growth friendly fiscal consolidation in the context of
a strong medium-term fiscal framework to maintain fiscal sustainability.
Enhancement and careful coordination of emirate-specific fiscal anchors and
rules would ensure a unified national fiscal stance.
“Reforms under the UAE 2050 Strategy are welcome and should be sustained,
with a focus on diversification of the economy, to ensure a balanced energy
transition and strong long-term economic growth. Although the UAE has made
significant progress on climate initiatives, prioritization should be given
to low-carbon investments with the greatest economic significance and
highest potential to reduce emissions and energy intensity. This will be
aided by ongoing major investments in renewable energy sources and work to
develop a green taxonomy and mainstream green and sustainable finance.
Ongoing structural reforms, such as those to support private sector
employment and female labor force participation, increase trade and foreign
investment, and harness the benefits of technology and education will help
deliver sustainable and inclusive growth. Further enhancing cooperation
across individual emirates, including on the collection, sharing, 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.”