Compiled by
Vishal Bhidu
Washington, DC: Earlier this month, the International Monetary Fund (IMF) made the observation that the real GDP is poised to grow by 4 percent in 2024 in the United Arab Emirates (UAE) while inflation on average is expected to be contained close to 2 percent. This follows the mission of the IMF led by Mr. Ali Al-Eyd after discussions were held with the UAE authorities as part of the 2024 Article IV Consultation from May 2 – 16, 2024
Following the mission’s end, Mr. Al-Eyd issued the following statement: “Economic growth in the UAE is broad-based, 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 safe haven status continue to drive rapid growth in housing prices and an increase in rents while adding to ample domestic liquidity. Hydrocarbon GDP growth is expected to increase this year, including 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 address the recent flooding episode. Overall real GDP is projected to grow by around 4.0 percent in 2024, and average inflation is expected to remain contained close to 2 percent.
He elaborated further that fiscal and external surpluses will continue to remain high on the back of relatively high oil prices. Moreover, the general government surplus is poised to hover at 5.0 percent of GDP in 2024 while public debt is on track to decline further towards 30 percent of GDP, benefitting from active debt management strategies. Capital spending is expected to meet ongoing infrastructure needs, and the introduction of the corporate income tax will help support non-hydrocarbon revenue with its full implementation in the coming years. The current account surplus is projected at around 9 percent of GDP in 2024.
While the mission lead guarded against uncertainty and external risks saying the outlook encompasses those related geopolitical tensions, global growth and financial conditions, and commodity price volatility while uncertain impacts owing to climate change and the speed of global decarbonization will add to risks. However, the UAE’s large public financial buffers help mitigate risks, while accelerated public and private investment and structural reforms, including to meet more ambitious climate goals and develop low-carbon and renewable energy and technology, could spur growth more than expected.”
Set against this backdrop, Mr. Ali Al-Eyd pointed out that “policies should remain focused on delivering sustainable and diversified growth and ensuring financial and monetary stability while remaining agile to respond to economic and geopolitical uncertainties. In this connection, efforts are welcomed to continue building fiscal space and complete the implementation of the Dirham Monetary Framework, strengthening the resilience of UAE’s financial system. Thus, the IMF Staff welcomes the creation of the Financial Stability Council and encourages its implementation.
“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 central bank intends to restore the reserve requirements to the historical level of 14 percent 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.”
“The efforts to digitalize the financial system and payment landscape are welcome and should continue to follow a risk-conscious approach. Initiatives to develop and regulate the virtual asset industry should be informed by a careful assessment of macroeconomic and financial stability risks.”
He also welcomed several efforts undertaken under the National AML/CFT Strategy and Action plan in UAE that led to the recent removal of the UAE from enhanced monitoring under the Financial Action Task Force and encouraged continued progress.
“The UAE’s ambitious structural reform agenda should continue to be supported by integrated government strategies, deliver strong governance frameworks, and promote private sector development and green growth. In this regard, coordinated efforts to further advance CEPAs, attract FDI and talent, and fully implement the AI, Digital Economy, and Green strategies will be key. 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 continue to modernize social safety nets. Continued progress on enhancing data standards and transparency will support improved economic assessment and reform implementation,” declared Mr. Ali Al-Eyd.
