Fiscal and external surpluses of the UAE are expected to remain strong on the back of relatively strong oil prices, the International Monetary Fund (IMF) said.
The IMF predicted that oil GDP growth is expected to increase this year, including on higher crude oil production from the UAE’s Opec+ quota increase. “Impacts from geopolitical tensions have been contained thus far, while the authorities delivered a rapid response to the recent flooding episode.”
The general government surplus is projected to be around 5.0 per cent of GDP in 2024 and public debt is on track to decline further towards 30 per cent of GDP, benefitting from active debt management strategies, an IMF staff team led by Ali Al Eyd said following discussions with the UAE authorities for the 2024 Article IV Consultation.
Capital spending is expected to meet ongoing infrastructure needs, and the introduction of the corporate income tax will support non-hydrocarbon revenue with its full implementation in the coming years. The current account surplus is projected at around 9.0 per cent of GDP in 2024, the IMF officials said while projecting an overall real GDP growth of 4.0 per cent in 2024, and average inflation to close to 2.0 per cent
“The outlook is subject to uncertainty and external risks, including geopolitical tensions, global growth and financial conditions, and commodity price volatility,” the IMF team said in a statement.
The IMF officials observed that the broad-based economic growth in the UAE is led by robust activity in the tourism, construction, manufacturing, and financial services sectors. “Foreign demand for real estate, increased bilateral and multilateral ties, and the UAE’s haven status continue to drive rapid growth in housing prices and an increase in rents while adding to ample domestic liquidity.”
“Banks have considerable capital and liquidity buffers overall, and general asset quality has improved, while credit growth is resilient despite higher domestic interest rates,” the team said, noting that the Central Bank of the UAE intends to restore the reserve requirements to the historical level of 14 per cent for demand deposits.
“We welcome the use of the Dirham Monetary Framework to rein in domestic liquidity and encourage further efforts, as well as continued coordination with the Ministry of Finance on domestic capital market development. Risks from activity in the real estate sector should continue to be closely monitored to tighten related macro-prudential policies if needed. Similarly, further enhancing the monitoring of financial stability risks from climate change is warranted,” said the statement.
“The efforts to digitalize the financial system and payment landscape are welcome and should continue to follow a risk-conscious approach.
The IMF welcomed the major efforts under the National AML/CFT Strategy and Action plan that resulted in the recent removal of the UAE from enhanced monitoring under the Financial Action Task Force and encourage continued progress.
The Washington-based Fund said efforts to maintain fiscal prudence should be supported by gradual fiscal consolidation and further fiscal structural reforms to ensure medium-term sustainability.
“The economic benefits of the corporate income tax will be gradual. Improvements in tax collection and administration, including through digital means and AI, are welcome and should be supported by further progress in enforcing compliance and building capacity. Enhancement and careful coordination of emirate-specific and federal fiscal rules and objectives in their medium-term fiscal frameworks would ensure a well-defined national fiscal stance.”
The IMF called for coordinated efforts to advance CEPAs, attract FDI and talent, and fully implement the AI, Digital Economy, and Green strategies. These efforts should be complemented by measures to ensure a level playing field, enhance access to finance, leverage and advance the progress of the Emiratization program, further close the gender gap, and modernize social safety nets. “Continued progress on enhancing data standards and transparency will support improved economic assessment and reform implementation.”