- Strong economic growth continues, underpinned by robust domestic activity. Although the outlook is subject to heightened global uncertainty, ongoing reform efforts are expected to support medium-term growth and energy transition.
- Fiscal and external surpluses are expected to remain comfortable despite lower oil production.
- Banks are adequately capitalized and liquid overall, but continued close monitoring of financial stability risks, including related to continued increasing house prices, is warranted.
Washington, DC: A staff team from the International Monetary Fund (IMF), led by Mr. Ali Al-Eyd, visited the United Arab Emirates from January 14–22, 2025, to discuss economic and financial developments, the outlook and the country's policy and reform priorities. At the conclusion of the mission, Mr. Al-Eyd issued the following statement:
"Near-term growth is strong and expected to remain healthy at around 4 percent in 2025, despite lower-than-expected oil production related to OPEC+ agreements. Non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services. Capital inflows remain strong, attracted by social and business-friendly reforms, and contribute to ongoing demand for real estate, which is driving further growth in house prices across different segments and locations. Hydrocarbon GDP is expected to grow above 2.0 percent this year, following OPEC+ decisions to sustain production cuts, and as the UAE implements a more gradual OPEC+ quota increase. Inflation is expected to remain contained around 2.0 percent in 2025 despite higher housing and utilities-related costs.
"Hydrocarbon revenue is expected to decline amid volatile oil prices and reduced oil production, but fiscal and external surpluses are projected to remain comfortable. The fiscal surplus is expected to moderate to around 4 percent of GDP in 2025 from an estimated 5 percent of GDP last year. However, non-hydrocarbon revenue is projected to increase steadily in the coming years with the ongoing implementation of the corporate income tax. Public debt remains contained at around 30 percent of GDP. The current account surplus is projected at around 7.5 percent of GDP, while international reserves are healthy at over 8.5 months of imports.
"Banks remain adequately capitalized and liquid overall, while asset quality further improved in 2024. Robust domestic activity and resilient demand for credit has supported banks' profitability amid still-elevated interest rates. Banks' exposure to the real estate sector has declined by 4 percentage points to 19.6 during the period December 2021 to September 2024, and risks associated with continued increasing house prices should continue to be closely monitored. Ongoing improvements to the AML/CFT framework and progress under the Financial Stability Council are welcome and should be continued. Regulation and supervision of crypto-related activities should evolve in line with market developments. Staff welcome greater transparency and communication on the monetary framework and operations, which supports liquidity management and local capital market development.
"The outlook remains subject to heightened global uncertainty. Turbulent external conditions, including resulting from geopolitical and policy uncertainties, could tighten global financial conditions, weaken global growth, and increase oil price volatility, impacting UAE fiscal and external balances and raising risks to domestic activity and financial markets. However, substantial financial buffers help mitigate short-term risks, while ongoing reforms and large investment in infrastructure and AI should lift productivity, posing upside medium-term growth risks.
"UAE reform efforts continue to support medium-term growth and a smooth energy transition, with prioritization and sequencing key to ensure effective outcomes. Ongoing infrastructure investments should enhance tourism and domestic activity, while ongoing trade liberalization, underpinned by Comprehensive Economic Partnership Agreements, should further boost trade and FDI. Advancing a medium-term fiscal framework would ensure a coordinated national fiscal stance, promote long-term sustainability, and help meet climate change-related challenges. Continued progress in improving economic data collection and dissemination will reinforce these efforts.
"The IMF team would like to express its appreciation to the authorities and other stakeholders for their collaboration and the fruitful and open discussions."
