The 2007 Article IV Consultation on the United Arab Emirates (UAE) examines the near- and medium-term outlook, inflation, and fiscal policy. The rapid expansion is supported by an outward-oriented development strategy and sustained high oil prices. Reforms are under way to strengthen the prudential and regulatory oversight of the banking system and the capital markets; to open the banking sector to greater competition; and to strengthen the legal framework for the financial sector. Executive Directors agreed that the key challenges will be to ensure sustained noninflationary growth and further diversification of the economy.
1. This statement provides information on recent developments in the United Arab Emirates that has become available since the staff report was circulated to the Executive Board on August 21, 2007. This information does not change the staff appraisal.
2. In August, the WEO oil price projections for 2007 were revised upward by 3 percent on average compared to their June 2007 baseline. The impact of this revision on the projected current account and fiscal balances for 2007 is modest (about 0.6 percentage point of GDP each) and does not materially change the staff’s medium-term scenario.
3. In July 2007, Moody’s upgraded the government of Abu Dhabi’s long-term foreign and local currency bond rating to Aa2. This was followed by a rating upgrade for several U.A.E.-based banks. The Emirate of Abu Dhabi announced plans to issue its first bond in the international capital markets, which would serve as a benchmark for the pricing of corporate debt instruments.
4. The merger of two of the largest banks in Dubai-Emirates Bank International and the National Bank of Dubai—is underway following the approval by the shareholders in September. The new consolidated bank, to be named Emirates NBD, will have an asset base of about $45 billion, the largest in the U.A.E. The merger is expected to lead to further consolidation in the U.A.E. banking sector.
5. The U.A.E.’s capital markets seem to be slowly recovering from the sharp correction that started in 2005. As of September 13, 2007, the Abu Dhabi Securities Market (ADSM) and the Dubai Financial Market (DFM) had posted positive returns for the year, with gains of about 14 percent and 2 percent, respectively. A new exchange, the Dubai Mercantile Exchange, started operations on June 1, with the introduction of the first Oman crude oil futures contract. The recent turmoil in international financial markets has had a relatively minor effect on U.A.E. capital markets.
6. Collaboration between the authorities and the IMF Statistics Department for the development of a new consumer price index has continued. In addition, a multi-sector statistics mission is expected to take place in the next few months with the aim of helping the authorities upgrade their statistical system and subscribe to the GDDS.