IMF has commended the UAE authorities on a successful vaccination program and prompt policy response to combat the effects of the pandemic and welcomed the economic recovery underway.
This is mentioned in the IMF board’s 2021 Article IV consultations with the UAE authorities.
Noting that significant downside risks remain, the Fund 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.
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, IMF said,
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.
Also published on Medium.