The IMF believes that the UAE's fiscal deficit is expected to remain at 1.6% of GDP this year, before returning to a surplus
Economic growth in the UAE is expected to strengthen over the course of the next several years on higher oil prices and increased government spending, according to the International Monetary Fund.
“The UAE economy continues to adjust to a prolonged decline in oil prices since 2014,” said Natalia Tamirisa, who led an IMF team mission in the UAE between September 16 and 30.
“Non-oil activity remains subdued amid continued corporate restructuring, real estate overhang, and tightening financial conditions.”
With oil production and government spending set to rise, the IMF forecasts overall growth at 2.9 percent this year and 3.7 percent next year, while inflation is projected at 3.5 percent this year due to the implementation of VAT and is expected to ease afterwards.
The UAE’s fiscal deficit is expected to remain stable at about 1.6 percent of GDP this year, and return to a surplus. The current account surplus will exceed 7 percent of GDP this year.
“Given large fiscal buffers, ample spare capacity, and rising investment needs for Expo 2020, the government has appropriately switched to providing stimulus to the economy,” Tamirisa said.
“Front-loading stimulus measures and focusing them on productive spending, consistent with the Vision 2021 goals of diversifying the economy and raising productivity, would augment their impact on growth.”
Over the medium term, as oil prices soften the IMF believes the UAE will return to the path of “gradual fiscal consolidation” to help save an adequate portion of exhaustible oil income for future generations.
Tamirisa added that ‘tightening financial conditions and increased global and regional uncertainty call for continued vigilance in monitoring financial sector risks, including those from a prolonged downturn in real estate and concentrated loan portfolios.”