Abstract
IMF Country Report No. 22/50
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IMF Country Report No. 22/50
UNITED ARAB EMIRATES
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT
February 2022
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2021 Article IV consultation with United Arab Emirates, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its November 22, 2021 consideration of the staff report that concluded the Article IV consultation with United Arab Emirates.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 22, 2021, following discussions that ended on September 28, 2021, with the officials of United Arab Emirates on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 5, 2021.
An Informational Annex prepared by the IMF staff.
The document listed below will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PR22/43
IMF Executive Board Concludes the 2021 Article IV Consultations with the United Arab Emirates
FOR IMMEDIATE RELEASE
Washington, DC – February 17, 2022: On November 22, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the 2021 Article IV consultation1 with the United Arab Emirates.
The UAE moved quickly to address the health and economic effects of the pandemic. Widespread testing and containment measures helped limit the initial spread of the virus, while early vaccination efforts have resulted in vaccination rates among the highest globally. Fiscal and macro-financial support have provided relief to hard-hit sectors, SMEs, those in need, and the financial system over the past year and half, and some measures have been extended.
The economic recovery is gaining momentum, supported by the UAE’s early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020. Overall GDP growth is projected at 2.2 percent in 2021, driven by non-oil growth of 3.2 percent. Real oil GDP growth is expected to be close to zero this year in line with the OPEC+ agreement. Banks remain adequately capitalized, though asset quality has decreased somewhat and further balance sheet vulnerabilities, including from the COVID-19 crisis, may still lie ahead. Over the medium-term, growth is expected to accelerate with the benefit of structural reform efforts, increased foreign investment, and rising oil production.
The overall fiscal deficit is projected to narrow to 0.7 percent of GDP in 2021 and shift into a small surplus by 2024. These improvements reflect revenue gains from current and expected higher oil prices and stronger economic growth alongside modest fiscal reform efforts. Higher oil prices will also benefit the current account balance, which is projected to increase to 10 percent of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5 percent of GDP in the medium-term.
Strong reform efforts are underway with the ambitious UAE 2050 Strategy. Recent reforms to promote private sector growth and development are important to strengthen non-oil growth, boost productivity, and attract foreign investment. Going forward, careful prioritization and sequencing of reforms and enhancing collaboration across individual emirates are central to ensuring higher levels of future diversified, sustainable and inclusive economic growth.
Executive Board Assessment2
Executive Directors commended the authorities on a successful vaccination program and prompt policy response to combat the effects of the pandemic and welcomed the economic recovery underway. Noting that significant downside risks remain, they encouraged the authorities to pursue further efforts to maintain macro-financial stability, strengthen fiscal policy frameworks, foster economic diversification, and improve inter-generational equity and climate sustainability.
Directors agreed that accommodative policies should be maintained until the recovery is fully entrenched. Ensuring public health and supporting the most vulnerable remain top priorities. Once the recovery is established, Directors encouraged the authorities to implement a gradual, targeted, and growth-friendly fiscal consolidation, embedded in a credible medium-term framework. Such efforts would not only help ensure medium-term fiscal sustainability but also bolster inter-generational equity. In this context, they underscored the importance of careful coordination of emirate and federal fiscal anchors and enhanced dissemination of their data to improve transparency and governance. Strengthening collaboration, coordination and information sharing with government-related entities is also important.
Noting that the banking sector remains adequately capitalized, Directors called for continued monitoring of financial stability risks and digitalization challenges, including through strengthened macroprudential and regulatory frameworks. A Financial Sector Assessment Program update would be useful. Directors welcomed the progress made with the AML/CFT framework and encouraged the authorities to sustain the reform momentum.
Directors welcomed the new Dirham monetary policy framework which would help enhance monetary policy transmission. They also encouraged strong coordination between the government and the Central Bank of the United Arab Emirates to facilitate domestic capital market development.
Directors welcomed the UAE’s ambitious structural reform agenda, including recent initiatives to support private sector development. They noted that prioritization and well-sequencing of reform efforts would be important to help lift productivity and potential growth and facilitate economic diversification. In particular, Directors emphasized the importance of continued labor market reforms, including to raise female participation, strengthening the economy’s resilience to oil shocks, and accelerating climate change mitigation measures and adaptation plans. Enhanced collaboration across federal agencies and individual emirates as well as further improvements in coverage, timeliness, and availability of data and statistics, would improve transparency and governance and help the county achieve higher levels of inclusive, sustainable, and green growth.
United Arab Emirates: Selected Economic Indicators, 2019–22
Quota: SDR 2,311.2 million (September 2021)
Population: 9.28 million (2020)
Per capita GDP: $38,661 (2020)
In percent of nonoil GDP. Excludes staff estimates of SWF investment income.
Excludes staff estimates of foreign assets of sovereign wealth funds; includes the 2021 SDR allocation of SDR 2.2 billion.
United Arab Emirates: Selected Economic Indicators, 2019–22
Quota: SDR 2,311.2 million (September 2021)
Population: 9.28 million (2020)
Per capita GDP: $38,661 (2020)
| Proj. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | |||
| Output and prices | (Annual percent change) | |||||
| Real GDP | 3.4 | -6.1 | 2.2 | 3.5 | ||
| Real nonoil GDP | 3.8 | -6.2 | 3.2 | 3.4 | ||
| CPI inflation (average) | -1.9 | -2.1 | 0.6 | 2.2 | ||
| Public finances | (Percent of GDP) | |||||
| Revenue | 31.1 | 27.9 | 30.7 | 30.9 | ||
| Expenditures | 30.5 | 33.0 | 31.4 | 31.1 | ||
| Net lending(+)/borrowing(-) (Revenue minus expenditures) | 0.6 | -5.1 | -0.7 | -0.2 | ||
| Nonoil primary balance 1/ | -23.7 | -25.1 | -26.7 | -26.1 | ||
| Gross general government debt | 27.1 | 39.4 | 39.4 | 39.3 | ||
| Monetary sector | (Annual percent change) | |||||
| Broad money | 8.0 | 4.6 | 3.8 | 4.2 | ||
| Credit to private sector | 0.6 | -2.6 | 1.2 | 4.6 | ||
| External sector | (In percent of GDP, unless otherwise indicated) | |||||
| Current account balance | 8.9 | 5.8 | 10.0 | 9.8 | ||
| External debt | 81.7 | 106.7 | 99.9 | 98.1 | ||
| Gross official reserves (billions of U.S. dollars) 2/ | 108.4 | 106.7 | 120.3 | 134.5 | ||
| In months of next year’s imports of goods & services, net of re-exports | 8.9 | 7.6 | 7.9 | 8.3 | ||
In percent of nonoil GDP. Excludes staff estimates of SWF investment income.
Excludes staff estimates of foreign assets of sovereign wealth funds; includes the 2021 SDR allocation of SDR 2.2 billion.
United Arab Emirates: Selected Economic Indicators, 2019–22
Quota: SDR 2,311.2 million (September 2021)
Population: 9.28 million (2020)
Per capita GDP: $38,661 (2020)
| Proj. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | |||
| Output and prices | (Annual percent change) | |||||
| Real GDP | 3.4 | -6.1 | 2.2 | 3.5 | ||
| Real nonoil GDP | 3.8 | -6.2 | 3.2 | 3.4 | ||
| CPI inflation (average) | -1.9 | -2.1 | 0.6 | 2.2 | ||
| Public finances | (Percent of GDP) | |||||
| Revenue | 31.1 | 27.9 | 30.7 | 30.9 | ||
| Expenditures | 30.5 | 33.0 | 31.4 | 31.1 | ||
| Net lending(+)/borrowing(-) (Revenue minus expenditures) | 0.6 | -5.1 | -0.7 | -0.2 | ||
| Nonoil primary balance 1/ | -23.7 | -25.1 | -26.7 | -26.1 | ||
| Gross general government debt | 27.1 | 39.4 | 39.4 | 39.3 | ||
| Monetary sector | (Annual percent change) | |||||
| Broad money | 8.0 | 4.6 | 3.8 | 4.2 | ||
| Credit to private sector | 0.6 | -2.6 | 1.2 | 4.6 | ||
| External sector | (In percent of GDP, unless otherwise indicated) | |||||
| Current account balance | 8.9 | 5.8 | 10.0 | 9.8 | ||
| External debt | 81.7 | 106.7 | 99.9 | 98.1 | ||
| Gross official reserves (billions of U.S. dollars) 2/ | 108.4 | 106.7 | 120.3 | 134.5 | ||
| In months of next year’s imports of goods & services, net of re-exports | 8.9 | 7.6 | 7.9 | 8.3 | ||
In percent of nonoil GDP. Excludes staff estimates of SWF investment income.
Excludes staff estimates of foreign assets of sovereign wealth funds; includes the 2021 SDR allocation of SDR 2.2 billion.
Title page
UNITED ARAB EMIRATES
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
November 5, 2021
KEY ISSUES
Context. A swift policy response helped mitigate the economic impact of the twin COVID-19 and oil price shocks and contain the initial spread of the virus. A gradual recovery driven by the non-oil sector is underway, following a deep recession in 2020. Fiscal and external balances have improved with recent oil price increases. The UAE is among the world leaders in delivering vaccinations, with nearly 85 percent of the population fully vaccinated as of October 2021.
Outlook and risks: GDP growth is projected to gradually strengthen this year and next. Overall risks remain tilted to the downside, led by uncertainties related to the global pandemic. But strong UAE reform efforts present an upside risk to growth.
Main policy recommendations: Policies should focus on ensuring the recovery and protecting the most vulnerable, safeguarding financial stability, strengthening fiscal policy frameworks, and fostering economic diversification and higher productivity growth.
Near-term policies: Ensure public health and support the most vulnerable. Maintain current near-term policies until the recovery is firm, but increasingly target support. Carefully calibrate future policy withdrawal and align with any new stimulus measures. Extend targeted policies if the recovery stalls.
Financial sector: Ensure financial stability through enhanced risk assessment of asset quality and further strengthening of macroprudential and regulatory frameworks. Continue welcome progress to strengthen AML/CFT measures.
Fiscal policy: Once the recovery is established, implement a gradual, but targeted, growth-friendly fiscal consolidation to ensure medium-term fiscal sustainability. Underpin efforts with a combination of fiscal restraint, targeted support, and reforms to boost non-oil revenue set in a medium-term fiscal framework. Enhance emirate-specific frameworks with credible fiscal anchors and coordinate these at the federal level to ensure a unified fiscal stance. Continue progress in fiscal transparency to strengthen governance.
Structural policy: Carefully prioritize and sequence the ambitious structural reform agenda to help revive economic diversification, deliver higher productivity growth, and lift medium-term potential. Give greater prominence to improving the coverage, quality, timeliness, and availability of economic statistics.
Approved By
Thanos Arvanitis and Andrea Schaechter
Discussions took place virtually during September 14–28, 2021. The mission team comprised A. Al-Eyd (Head), H. Bukhari, Y. Korniyenko, C. Sandoz, Y. Yang (all MCD), and M. Miccoli (MCM). K. Kao (LEG) joined specific meetings. Messrs. Mohieldin and Alhosani attended part of the meetings, and Mmes. Choueiri and Fadhel participated in the discussions (all OED). The mission met with the Central Bank Governor; the Undersecretary of the Ministry of Finance; other senior officials; and representatives of the business community. Mmes. Abu Sharar and Bondar provided invaluable support to the mission.
Contents
RECENT MACROECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Near-Term Policies to Ensure Sustained Recovery
B. Safeguarding Financial Stability
C. Strengthen Fiscal Policy Frameworks
D. Reviving Economic Diversification and Fostering Higher Productivity Growth
E. Data Issues
STAFF APPRAISAL
BOXES
1. Changing Global Financial Conditions
2. Fiscal Sustainability and Reforms
FIGURES
1. Recent Economic Developments
2. Real and Fiscal Sector Developments and Outlook
3. Monetary and Financial Sector Developments
4. External Sector Developments
5. Competitiveness and Governance Indicators
TABLES
1. Selected Economic Indicators, 2016–26
2. Balance of Payments, 2016–26
3a. Government Finances, 2016–26
3b. General Government Finances, 2016–26
3c. Central Government Finances, 2016–26
4. Monetary Survey, 2016–26
5. Maturing Bonds, Syndicated and Bilateral Loans in the Non-Financial Public Sector
6. Financial Soundness Indicators of the Banking Sector
ANNEXES
I. Policy Measures Adopted and Announced in 2020–21
II. Implementation of Past Fund Article IV Advice
III. Fiscal and Debt Sustainability Assessments
IV. External Sector Assessment
V. Risk Assessment Matrix Assessment Matrix
VI. Sustainable Development Goals and Climate Change Actions
VII. Cross-border Use of Wholesale Central Bank Digital Currency: Some Preliminary Considerations
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.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in the summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
