Washington, DC: On July 11, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the United Arab Emirates and considered and endorsed the staff appraisal without a meeting.
UAE economic growth remains strong, driven by robust domestic activity. Non-hydrocarbon growth has benefitted from healthy tourism flows and increased activity in the construction, manufacturing, and financial services sectors. This more than offset a contraction in hydrocarbon growth from OPEC+ and UAE voluntary oil production cuts, resulting in overall GDP growth of 3.6 percent in 2023. Inflation moderated sharply to 1.6 percent in 2023. Fiscal and external balances remain high, supported by relatively high oil prices.
The UAE has continued to experience strong capital inflows, reflecting commodity revenue, safe haven flows, and investment drawn by social and business-friendly reforms. This has boosted central bank foreign reserves and surplus domestic liquidity. It has also supported notable growth in real estate prices, particularly in high-end segments in Dubai, though increasingly in some other segments. Bank balance sheets have strengthened further, with capital buffers well above regulatory minima, and credit has continued to grow despite policy interest rate hikes. Although nonperforming loans have declined, they remain elevated in the construction sector. Major efforts under the anti-monetary laundering/combatting the financing of terrorism (AML/CFT) Strategy and Action plan resulted in the removal of the UAE from enhanced monitoring under the Financial Action Task Force.
The economic outlook remains strong, supported by domestic non-hydrocarbon activity, continued reforms and related public spending, and a rapid expansion in hydrocarbon production, led by the UAE's OPEC+ quota increase from 2025. Overall GDP is projected to grow by 3.7 percent in 2024 and 4.5 percent in the medium-term. Fiscal and external surpluses are expected to remain high on the back of relatively high oil prices. Tax policy reforms will support the medium-term fiscal surplus, while the current account surplus will moderate somewhat in response to higher reform-driven imports and stabilizing oil prices.
The outlook is subject to uncertainty and external risks, but large sovereign buffers help mitigate vulnerabilities. Intensification of geopolitical tensions and geoeconomic fragmentation, or an abrupt global slowdown, sharp correction in global asset prices, or commodity price volatility could lead to a reduction in the flow of goods, capital, and tourism. Accelerated public investment, including higher hydrocarbon production, or structural reforms efforts pose upside risks to medium-term growth. Accelerated climate reforms will help the UAE meet the long-term challenges from global decarbonization efforts.
Executive Board Assessment [2]
In concluding the 2024 Article IV consultation with the United Arab Emirates, Executive Directors endorsed the staff's appraisal, as follows:
Economic growth is positive, driven by strong domestic activity and sustained efforts to modernize and diversify the economy. Growth momentum is strong, thanks to the authorities' ambitious reform agenda, supported by investments to improve infrastructure and transportation, advance investments in renewables and new technologies, improve governance, and increase trade. Substantial sovereign buffers mitigate vulnerabilities from the elevated regional and global risks. Against this, the ample fiscal space should be deployed strategically, with accelerated investments geared towards high growth and sustainability areas that will support productivity growth and encourage private sector development.
The banking system remains resilient to shocks, but continued close monitoring of financial stability is needed to mitigate risks. Bank balance sheets have strengthened further. However, the broader rise in real estate prices and rents and uncertainty related to climate risks underscore the importance of continued strengthening of the macroprudential framework and financial stability monitoring, including for the insurance sector. The Standards for Bank Real Estate Exposure should be finalized with a lower threshold and the implementation of higher capital requirements for large exposures. Consideration of a countercyclical capital buffer would further enhance banks' resilience. The establishment of the Financial Stability Council is highly welcome and should ensure coordinated monitoring across emirates and regulatory bodies. Staff encourage the authorities to request an FSAP to support the analysis and assessment of risks. Continued progress on strengthening the AML/CFT framework is essential to ensure effective risk mitigation.
The digitalization of the financial system and payment landscape should carefully balance risks and opportunities. The development of an Instant Payments Platform and exploration of a CBDC (Central Bank Digital Currency) should continue to follow a careful assessment of risks and maintain well-defined policy objectives. Similarly, initiatives to develop the virtual asset industry should be informed by a careful assessment of macroeconomic and financial stability risks, while ensuring adequate regulatory capacity.
Finalizing the monetary framework will strengthen the management of surplus liquidity. Implementing the M-bill buyback program and remaining fine tuning facilities will help develop the M-Bills market, absorb surplus liquidity, and tighten the transmission of policy rate changes. Efforts to develop domestic capital markets and the creation of green and Islamic finance products will also support domestic liquidity management and enhance climate resilience. Further hikes in the reserve requirements beyond 14 percent should be avoided.
Sustaining fiscal prudence and reforms will balance medium-term fiscal sustainability and development objectives. Recent efforts to contain current expenditure, reinforced by further advancing tax policy reforms, the gradual removal of subsidies, and measures to enhance spending efficiency would support consolidation efforts and further declines in public debt, which remains sustainable. Finalizing the implementation of the CIT, phasing out current fee structures and reviewing wide-ranging incentives and exemptions, and enhancing tax administration are central to ensuring efficiency and closing the tax revenue gap.
The development of harmonized medium-term fiscal (MTF) and sovereign asset-liability management (SALM) frameworks is critical to ensuring fiscal policy efficiency and strengthening transparency. Enhancement and harmonization of emirate-specific and federal fiscal rules and objectives in their MTF frameworks would ensure a well-defined national fiscal stance. These efforts will improve budgeting efficiency, help track fiscal risks, and ensure efficient management of public investments. The SALM framework will further promote sound balance sheet management and inform policymaking for long-term fiscal sustainability. Combined, these frameworks would support coordination across the public sector, and further strengthen fiscal governance and transparency.
Careful prioritization of reform initiatives and strategies will support medium-term potential growth and climate resilience. Reforms to leverage trade and FDI, harness digitalization and AI, and achieve net zero emissions can be further integrated. Underpinning this agenda with robust governance frameworks and additional efforts to strengthen institutions, modernize labor markets, and close gender gaps will enhance outcomes. Avoiding crowding out of the private sector amid large public investment needs is crucial, and should be supported by further improving SMEs' access to credit.
Maintaining momentum in data collection and dissemination efforts should be a top priority. UAE data provision to the Fund has some gaps, but remains broadly adequate for surveillance. The authorities remain fully committed to closing exiting data gaps, including by increasing capacity, undertaking TA, and seeking to harmonize data collection across emirates. Nevertheless, further progress is needed to ensure compliance with the IMF's enhanced e-GDDS and advance toward higher standards.
Staff propose that the next Article IV consultation with the UAE follow the standard 12-month cycle.
United Arab Emirates: Selected Economic Indicators, 2022-25 Quota: SDR 2,311.2 million (June 2024) Population: 9.6 million (2021) Per capita GDP: $52,518 (2023)
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
