20220216-IMF-United_Arab_Emirates_2021_Article_IV_Consultation-Press_Release_and_Staff_Report_67页_3mb

Summary of the 2021 Article IV Consultation with the United Arab Emirates

Core Content

The 2021 Article IV consultation with the United Arab Emirates (UAE) by the International Monetary Fund (IMF) evaluated the country's economic developments, policies, and future outlook. The consultation highlighted the UAE's swift response to the pandemic, strong recovery efforts, and ongoing structural reforms aimed at economic diversification and sustainability.

Main Views and Key Information

Economic Recovery and Pandemic Response

• The UAE implemented swift and substantial policy actions to mitigate the economic impact of the pandemic and oil price shocks.
• Widespread testing and containment measures helped limit the initial spread of the virus.
• Early vaccination efforts led to nearly 85% of the population being fully vaccinated by October 2021.
• The economy experienced a deep but temporary recession in 2020, with GDP contracting by 6.1%, driven by declines in both oil and non-oil sectors.
• The recovery has gained momentum, supported by the UAE's strong health response, continued supportive macroeconomic policies, and the delayed Expo 2020.

GDP and Economic Growth

• Overall GDP growth is projected at 2.2% in 2021, driven by non-oil growth of 3.2%.
• Non-oil GDP growth is expected to accelerate to 3.4% in 2022, with further improvement over the medium-term.
• Real oil GDP growth is expected to be close to zero in 2021, in line with OPEC+ production cuts.
• The non-oil output gap is expected to close by 2026.

Fiscal and External Balances

• The overall fiscal deficit is projected to narrow to 0.7% of GDP in 2021 and shift into a small surplus by 2024.
• Revenue gains from higher oil prices and stronger economic growth, alongside modest fiscal reforms, are expected to improve the fiscal position.
• The current account surplus is projected to increase to pre-crisis levels in 2021 and remain positive at around 8.5% of GDP in the medium-term.
• Gross official reserves are expected to increase by $13.6 billion in 2021, including from the UAE's SDR allocation.

Financial Sector

• Banks remain adequately capitalized, with a Tier 1 capital ratio of 16.4% in 2021Q2.
• The non-performing loan (NPL) ratio rose to about 8.2% between 2020Q4 and 2021Q2, up from 6.5% in 2019.
• Credit to the private retail segment has recovered, but corporate lending continues to contract.
• Financial stability risks and digitalization challenges require continued monitoring, with the need to strengthen macroprudential and regulatory frameworks.

Structural Reforms

• The UAE is pursuing an ambitious structural reform agenda under the UAE 2050 Strategy.
• Recent reforms aim to promote private sector growth, enhance productivity, and attract foreign investment.
• Prioritization and sequencing of reforms are critical to achieving higher productivity and potential growth.
• Enhanced data coverage, quality, timeliness, and availability are important to improve transparency and governance.

Policy Recommendations

• Near-term policies should focus on public health, targeted support for vulnerable groups, and maintaining financial stability.
• The current macroeconomic policy mix is appropriate until the recovery is firm, but should be increasingly targeted to viable firms and growth sectors.
• Once the recovery is established, a gradual and growth-friendly fiscal consolidation should be implemented within a credible medium-term framework.
• Coordination between fiscal and monetary authorities is essential to ensure a smooth transition and avoid abrupt economic shocks.
• Continued efforts to strengthen the AML/CFT framework and promote economic diversification are encouraged.

Key Economic Indicators (2019–2022)

Risks and Outlook

• The outlook remains tilted to the downside due to pandemic uncertainties, though strong reform efforts offer an upside risk.
• The UAE's strong reform momentum is expected to support higher medium-term growth.
• The recovery is likely to be gradual, given the depth of the recession and the uncertainty surrounding the pandemic.
• The rebound in oil prices is expected to improve fiscal and external balances.

Conclusion

The IMF Executive Board commended the UAE's response to the pandemic and its economic recovery, while emphasizing the importance of continued reform efforts and maintaining macro-financial stability. The country's focus on economic diversification, fiscal sustainability, and financial sector resilience is critical to its long-term development and stability.