IMF team concludes 2018 Article IV Consultation Mission to the UAE

Growth is expected to strengthen over the next few years on higher oil prices and increased government spending.

An IMF team led by Ms Natalia Tamirisa visited the United Arab Emirates (UAE)  during September 16-30, 2018, to conduct discussions for the 2018 Article IV Consultation. Upon conclusion of the visit, Ms Tamirisa issued the following statement:

“The UAE economy continues to adjust to a prolonged decline in oil prices since 2014. Non-oil activity remains subdued amid continued corporate restructuring, real estate overhang, and tightening financial conditions. With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 per cent this year and 3.7 per cent next year. Inflation is projected at 3.5 per cent this year owing to the introduction of the value-added tax and should ease afterwards. The fiscal deficit is expected to remain stable at about 1.6 per cent of GDP this year and turn to a surplus next year. The current account surplus will exceed 7 per cent of GDP this year.

“Given large fiscal buffers, ample spare capacity, and rising investment needs for Expo 2020, the government has appropriately switched to providing stimulus to the economy. Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity, would augment their impact on growth. Over the medium term, as oil prices are projected to soften, a return to the path of gradual fiscal consolidation would help save an adequate portion of the exhaustible oil income for future generations. Continued improvements in spending efficiency and strengthening non-oil revenue, including by gradually replacing a system of numerous and regressive fees with corporate taxation, would help achieve these goals.

“Improving medium-term growth and job prospects and advancing to a competitive knowledge-based economy require deepening and broadening structural reforms aimed at increasing the role of the private sector and fostering talent and innovation. The authorities’ recently announced plans to liberalize foreign investment, introduce long-term visas for professionals, and ease licensing requirements and business fees—once implemented—will be a welcome step in this regard. Other reform priorities include promoting competition, privatizing nonstrategic government-related enterprises (GREs), and improving SME access to finance. In particular, developing domestic government debt markets would catalyze financial market development and expand sources of financing for SMEs. Enhancing the quality of education and healthcare and promoting gender equality would cultivate talent.

“Tightening financial conditions and increased global and regional uncertainty call for continued vigilance in monitoring financial sector risks, including those from a prolonged downturn in real estate and concentrated loan portfolios. Ensuring consistency of the draft central bank and banking laws with international best practices and approving them swiftly would buttress the prudential framework. Continued upgrading of bank regulations and strengthening bank supervision are essential to maintaining the resilience of the banking system.

“Continued improvement of economic policy frameworks and coordination, and statistics would help align policies with the Vision 2021 goals. Stronger fiscal anchors would help mitigate the impact of adverse shocks on the economy while ensuring long-term debt sustainability and saving for future generations. Better monitoring and analysis of contingent fiscal liabilities stemming from GRE borrowing, delays in payments, and public-private partnerships, would help mitigate risks. Further improvements in the frequency and quality of economic statistics would support policy-making and inform business decisions. 

“The IMF team would like to express its appreciation to the authorities and other stakeholders for their hospitality and thoughtful discussions.”