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Monday, June 24, 2024
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IMF: UAE’s strong economy, surplus

The UAE’s economy is on a growth trajectory, driven by strong domestic activity and buoyed by high fiscal and external surpluses due to elevated oil prices. The near-term outlook is positive, though global risks and uncertainty remain, as stated by an International Monetary Fund (IMF) staff team led by Ali Al Eyd.

Non-hydrocarbon GDP growth is expected to surpass 4.0% this year and maintain a similar pace in 2024, driven by sectors like tourism, construction, and real estate. Reforms and the UAE’s status as a safe haven continue to attract capital and labor, contributing to robust real estate prices, particularly in high-end segments.

The IMF team emphasized the need for close monitoring of financial stability risks, despite overall adequate capitalization of banks. Maintaining a prudent fiscal stance amid higher oil revenue will help manage inflationary pressures, and continued structural reforms are essential for medium-term growth and a smooth energy transition.

The report also noted that hydrocarbon GDP growth would slow in 2023 due to OPEC+ production cuts but accelerate next year with the UAE’s 2024 OPEC+ production quota increase. Overall real GDP is expected to grow around 3.5% this year, with inflation remaining around 3.0% in 2023.

Fiscal and external surpluses are expected to remain high, driven by oil revenue and strong economic activity, with the introduction of a corporate income tax supporting higher non-oil revenue in the medium term. Public debt is projected to continue declining, and the current account surplus is expected to remain notably above the medium-term level in 2023 and 2024.

The IMF team emphasized the importance of close monitoring of financial stability, particularly due to rising real estate prices and tighter financial conditions. Efforts to strengthen macro-prudential and resolution frameworks, manage non-performing loans, and advance anti-money laundering and counter-terrorism financing strategies are encouraged.

The outlook remains subject to global uncertainties, but higher oil prices and fiscal buffers help mitigate risks, while reform efforts offer potential growth opportunities. Sustained reform efforts in the UAE support medium-term growth and a smooth energy transition.

Prioritization and sequencing of reforms are crucial for effective outcomes, including advancing a medium-term fiscal framework and boosting private sector employment, developing the domestic capital market, and leveraging trade and investment in digital and green initiatives. Improvements in economic data collection and sharing will further support these efforts.

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