UAE’s Near-Term Growth to Be Around 4%, says IMF

An International Monetary Fund (IMF) team, which visited the UAE between January 14 and 22, said that near-term growth is strong and expected to remain healthy at around 4% in 2025, despite lower-than-expected oil production related to OPEC+ agreements.

The non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services, Ali Al-Eyd, who led the IMF team, said.

According to him, capital inflows remained strong, attracted by social and business-friendly reforms, and contributing to ongoing demand for real estate, which is driving further growth in house prices across different segments and locations.

Hydrocarbon GDP is expected to grow above 2% this year, following OPEC+ decisions to sustain production cuts, and as the UAE implements a more gradual OPEC+ quota increase. Inflation is expected to remain contained around 2% in 2025 despite higher housing and utilities-related costs, he noted.

Hydrocarbon revenue is expected to decline amid volatile oil prices and reduced oil production, but fiscal and external surpluses are projected to remain comfortable. The fiscal surplus is expected to moderate to around 4% of GDP in 2025 from an estimated 5% of GDP last year.

However, non-hydrocarbon revenue is projected to increase steadily in the coming years with the ongoing implementation of the corporate income tax. Public debt remains contained at around 30% of THE GDP. The current account surplus is projected at around 7.5% of GDP, while international reserves are healthy at over 8.5 months of imports.

Banks Adequately Capitalised            

The UAE banks remain adequately capitalised and liquid overall, while asset quality further improved in 2024 while robust domestic activity and resilient demand for credit has supported banks’ profitability amid still-elevated interest rates.

The UAE banks’ exposure to the real estate sector has declined by 4 percentage points to 19.6 during the period December 2021 to September 2024, and risks associated with continued increasing house prices should continue to be closely monitored, he said.

Ongoing improvements to the AML/CFT framework and progress under the Financial Stability Council should be continued and regulation and supervision of crypto-related activities should evolve in line with market developments.

Greater transparency and communication on the monetary framework and operations, which supports liquidity management and local capital market development, he said.

Outlook

“The outlook remains subject to heightened global uncertainty as turbulent external conditions, including resulting from geopolitical and policy uncertainties, could tighten global financial conditions, weaken global growth, and increase oil price volatility, impacting UAE fiscal and external balances and raising risks to domestic activity and financial markets, he said.

However, substantial financial buffers help mitigate short-term risks, while ongoing reforms and large investment in infrastructure and AI should lift productivity, posing upside medium-term growth risks.

“UAE reform efforts continue to support medium-term growth and a smooth energy transition, with prioritisation and sequencing key to ensure effective outcomes. Ongoing infrastructure investments should enhance tourism and domestic activity, while ongoing trade liberalisation, underpinned by Comprehensive Economic Partnership Agreements (CEPAs), should further boost trade and FDI,” he said.