UAE rebound gains momentum: IMF
IMF analysts noted that the UAE’s ambitious 50-year reform agenda holds promise to deliver higher levels of future diversified and inclusive economic growth
The UAE’s economic recovery has begun to gain momentum, underpinned by its early and strong response to the Covid-19 pandemic, successful vaccination drive, increased tourism, and activity related to Expo 2020, the International Monetary Fund said.
However, for the current pace of recovery to be sustained, new fiscal stimulus and structural reforms, such as those to attract highly skilled professionals, support private sector employment, increase trade and foreign investment, are required, besides protecting public health through continued strong vaccination, the IMF said in a statement issued following 2021 Article IV Consultation discussions with the UAE authorities.
The IMF analysts noted 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. Achieving this outcome requires careful prioritisation and sequencing of reforms,” it said.
“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 per cent of UAE nationals and other residents with at least one dose,” it said.
The UAE’s GDP is estimated to have contracted by 6.1 per cent in 2020, reflecting declines of 6.0 per cent in oil GDP and 6.2 per cent 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 IMF said.
“Looking ahead, a gradual recovery is expected in 2021, 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, set to begin in October. We expect non-oil GDP growth to exceed 3.0 per cent this year, and to improve further in the medium-term, while oil GDP will continue to grow with increased production. Higher oil prices will lift the fiscal and external balances.
“Nevertheless, uncertainty around the recovery remains globally and in the UAE, and the overall balance of risks is tilted towards the downside, with a resurgence of the pandemic the key source of risk to the outlook. However, the UAE’s strong reform momentum provides an upside risk to growth,” the statement said.
Going forward, however, support measures should be increasingly targeted to viable sectors and firms and supporting people most in need.
Harnessing the benefits of technology should be prioritised and sequenced to ensure their efficiency and effectiveness, ensuring sustainable and inclusive growth outcomes, said the IMF.
“The swift and substantial policy response and the clear and proactive communication by the Central Bank of the United Arab Emirates 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," the Washington-based Fund said.
"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 macro-prudential and regulatory frameworks will further support these efforts," the IMF said.
“Looking to the medium-term, to ensure a smooth adjustment to an environmentally sustainable global economy, reform efforts will be needed to 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."
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