The UAE’s growth rate is projected to recover over the next few years, as the pace of the necessary fiscal consolidation eases, global trade regains momentum, and investment, including for Expo 2020, accelerates. This outlook is subject to downside risks, stemming mainly from a further sustained decline in oil prices, tighter financial conditions, a rise in protectionism and an intensification of regional conflicts.
Although the UAE’s fiscal position remains sustainable, the IMF said an improvement in the budget balance is needed to ensure that an equitable share of the oil income is saved for future generations. Ample fiscal space allows deficits to decline gradually while mitigating the adverse impact on the economy and the financial sector.
As part of the fiscal adjustment, the IMF said momentum in reforms needs to be sustained and coordinated with structural reforms. Complementing recent significant subsidy reforms, a timely introduction of the VAT and excise (duties) would be another major achievement, to diversify revenues away from oil. In tandem, efforts to contain growth of public spending and improve its efficiency are needed to generate the necessary fiscal savings while continuing to use public investment to diversify the economy, the IMF said.
The IMF has also called for coordinated fiscal efforts within in medium term policy framework. Adopting and publishing multi-year plans and integrating them with the annual budget process would clarify the direction for fiscal policy. Fiscal anchors and targets can be strengthened further to anchor fiscal sustainability and intergenerational equity. These efforts need to be supported by enhanced coordination between governments and GREs regarding their investment and borrowing plans, according to the IMF.