Expo 2020, which just got under way with the kind of fanfare typically characteristic of Dubai, is expected to lead to a significant rebound in tourism and other domestic economic activities.
The prestigious show is also expected to greatly add to the emirate’s attraction for highly skilled professionals and support private sector employment, increase trade and foreign investment, and harness the benefits of technology, making sustainable and inclusive growth outcomes possible.
The UAE’s non-oil GDP growth is expected to exceed 3 percent this year, with an improved outlook for the medium-term, while oil GDP will continue to grow with increased production. Higher oil prices will lift the fiscal and external balances.
The UAE’s response to Covid pandemic has won appreciation from agencies such as the IMF, which recently concluded Article IV consultations with the country. The Fund said in its assessment that the UAE’s strong reform momentum provides an upside risk to growth.
IMF noted that the UAE moved quickly to address the health and economic effects of the COVID-19 pandemic, and the economic recovery has begun to strengthen. Vaccinations cover nearly 95 percent of UAE nationals and other residents with at least one dose.
“As in other oil exporting economies, the twin shocks of COVID-19 and oil price declines resulted in a deep, but temporary, recession. GDP is estimated to have contracted by 6.1 percent in 2020, reflecting declines of 6 percent in oil GDP and 6.2 percent in non-oil GDP. Dampened global demand, lower oil prices, and reduced oil production under the OPEC+ agreement weighed on the fiscal and external balances compared to the previous year.
The Fund, however, said that for the recovery to be sustained, protecting public health through continued strong vaccination and testing efforts for all nationals and residents remains the top priority. The current macroeconomic policy mix remains appropriate. Going forward, however, support measures should be increasingly targeted to viable sectors and firms and supporting people most in need.
It noted that the swift and substantial policy response and the clear and proactive communication by the Central Bank have been critical throughout the crisis. Liquidity and capital in the banking system remain strong. However, corporate credit growth remains subdued, though retail lending has picked-up, and banks’ asset quality has weakened somewhat. Further impact on banks’ balance sheets, including from the COVID-19 crisis, may still lie ahead. Ensuring financial stability through continued monitoring of risks will further enhance resilience of the financial system. Ongoing efforts to strengthen macroprudential and regulatory frameworks will further support these efforts.
Looking to the medium-term, the Fund stressed the need for reform efforts to ensure a smooth adjustment to an environmentally sustainable global economy and deliver sustainable fiscal outcomes and intergenerational equity. This requires a gradual, but marked, fiscal consolidation in the context of a credible medium-term fiscal framework. Given the UAE’s decentralized fiscal structure, emirate-specific fiscal anchors should first be enhanced and then carefully coordinated to ensure a unified national fiscal stance.
The Fund felt that the UAE’s ambitious 50-year reform agenda holds considerable promise to deliver higher levels of future diversified and inclusive economic growth. This comes at an important moment for the UAE as it celebrates its Golden Jubilee and looks to leverage its talent, knowledge base, and vision for sustainable and smarter future growth.
But achieving this outcome requires careful prioritization and sequencing of reforms, enhanced integration of strategies and policies at different levels of government and finding a productive approach to enhancing collaboration and cooperation across the individual emirates. Ensuring timely collection and dissemination of economic data will buttress these efforts, it pointed out.
