The UAE’s real GDP growth rate is expected to be 3.5% in 2022 as against 2.2% in 2021, purely driven by the non-oil sector which will grow at 3.4%, the International Monetary Fund (IMF) said after concluding its executive board’s consultations with the UAE authorities on Thursday.
However, the UAE Central Bank forecast 4.2% expansion of the economy in September 2021 while Japan’s largest bank MUFG predicted 4.9% growth in 2022. The IMF also projected that the overall fiscal deficit will narrow to 0.7% of GDP in 2021 and move into a small surplus by 2024.
The IMF also lauded the UAE on its successful vaccination programme and said economic recovery in the country was gaining momentum with the help of the government’s supportive measures by quickly addressing the effects of the COVID-19 pandemic.
“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% in 2021, driven by non-oil growth of 3.2%. Real oil GDP growth is expected to be close to zero this year in line with the OPEC+ agreement,” the IMF said.
Over the medium-term, the IMF sees growth accelerating with the benefit of structural reform efforts, increased foreign investment, and rising oil production. “Fiscal and macro-financial support have provided relief to hard-hit sectors, SMEs, those in need, and the financial system over the past year and a half, and some measures have been extended,” it added.
To support the UAE economy, the federal government, Central Bank and local emirates pumped billions of dirhams in the first two years to support large corporates and small and medium businesses to offset the impact of the pandemic.
The UAE provided more than $125 billion worth of stimulus package to support the economy including $13.61 billion provided to boost liquidity in the banking sector to lend support to the private sector amidst credit crunch after the pandemic.
The fund’s 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”.
More than 95% of eligible residents in the UAE are fully vaccinated against COVID-19, while 100% have received at least one dose.
Current account surplus
They noted that higher oil prices will also benefit the UAE’s current account balance, which is projected to increase to 10% of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5% of GDP in the medium-term.
The IMF also pointed out that the UAE’s banking sector remains adequately capitalised but it called for continued monitoring of financial stability risks and digitalisation challenges.
The IMF’s directors also welcomed the progress made with the anti-money laundering and counter finance terrorism (AML/CFT) framework and encouraged the authorities to sustain the reform momentum. The fund also saw a massive jump in inflation from 0.6% last year to 2.2% this year.