Dubai: The UAE’s economy is set for fast rebound from the impact of Covid-19 crisis that impacted economies around the world, the Executive Board of the International Monetary Fund (IMF) said after concluding the 2021 Article IV consultation with the UAE.
“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,” the multilateral lender said in a note.
The IMF officials noted that 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 per cent in 2021, driven by non-oil growth of 3.2 per cent. 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.
The IMF observed that 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 per cent 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 per cent of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5 per cent of GDP in the medium-term.
Reforms to support growth
The IMF said 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.
Executive Directors commended the authorities on a successful vaccination programme and prompt policy response to combat the effects of the pandemic and welcomed the economic recovery underway. Noting that significant downside risks remain, they 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.
Directors agreed that accommodative policies should be maintained until the recovery is fully entrenched. Ensuring public health and supporting the most vulnerable remain top priorities. Once the recovery is established, Directors encouraged the authorities to implement a gradual, targeted, and growth-friendly fiscal consolidation, embedded in a credible medium-term framework.
Directors welcomed the UAE’s ambitious structural reform agenda, including recent initiatives to support private sector development. They noted that prioritization and well-sequencing of reform efforts would be important to help lift productivity and potential growth and facilitate economic diversification. In particular, Directors emphasized the importance of continued labor market reforms, including to raise female participation, strengthening the economy’s resilience to oil shocks, and accelerating climate change mitigation measures and adaptation plans.
