3.1 percent due to the VAT. Growth in UNITED ARAB government deposits and private-sector Recent developments credit picked up in Q3 2018. Stock market performance was mixed, Dubai’s declined EMIRATES UAE’s real GDP growth is estimated to have recovered from 0.8 percent in 2017 to in 2018 amid concerns over US monetary policy, while Abu Dhabi’s strengthened, 1.6 percent in 2018. Overall growth picked helped by recovery of oil prices and lower up in early 2018 driven by non-oil activity, Government Related Entities (GRE) debt. Table 1 2018 the spike in oil production and improved The real-estate market continues to face P o pulatio n, millio n 9.5 market sentiment. In Q4 2018, however, headwinds. Dubai property prices fell by GDP , current US$ billio n 414.9 economic momentum appears to have 7.4 percent in Q2 2018 due to oversupply, GDP per capita, current US$ 43493 taken a hit due to the sharp deceleration driven by a tapering expatriate popula- Scho o l enro llment, primary (% gro ss) a 110.9 in oil prices, and the spillover from reces- tion, government’s fiscal restraint, higher a sion in Iran has muted its trading links interest rates, and stronger exchange rate. Life expectancy at birth, years 77.3 with Dubai. Hydrocarbon GDP recovered Unemployment is very low (2.5 percent Source: WDI, M acro Poverty Outlook, and official data. from a 3 percent contraction in 2017 to an in 2017, ILO) and 81 percent of the work- Notes: estimated 2 percent growth in 2018. On ing-age population is employed. Howev- (a) M ost recent WDI value (2016). the demand side, growth was driven by er, youth unemployment (ages 15 -24) is private consumption and exports. higher, at 7.7 percent. Job growth slowed Fiscal and current accounts improved from 3.5 percent in 2017 to less than one following the 2015-16 slowdown. The percent in August 2018. The authorities overall fiscal deficit fell from 2.0 percent of have increased social allocations to im- GDP in 2016 to 1.6 percent of GDP in 2017 prove welfare, housing affordability, Growth recovered to 1.6 percent in 2018, as revenues from oil royalties increased education and healthcare provision for driven by the end of the June 2018 OPEC+ and expenditures decreased. In 2018, the nationals. There is limited understanding Agreement. Non-oil growth remained sub- deficit is estimated to have remained of welfare/poverty statistics given the lack steady at 1.6 percent of GDP. The deficit of a household survey that is representa- dued, however. Fiscal and current ac- was recently financed through sovereign tive of the entire population. However, a counts continued to recover. Fiscal easing wealth fund and external debt issuances household survey was launched in 2019 is now underway to facilitate the nonoil (US$5 billion in 2016, and US$10 billion in covering both Emirati and non-Emirati growth recovery. However this will be par- 2017). The current account surplus is esti- populations. Previous surveys show little tially offset by the 2019 OPEC-mandated mated to have improved from 3.7 percent evidence that poverty for nationals is a of GDP in 2016 to 7.2 percent in 2018, due concern. Results from the 2014 -15 house- oil production cuts that will dampen oil- to higher oil prices and stable imports. hold survey show the average consump- sector growth in the first half of the year. Monetary policy tracks the US to maintain tion for Emirati household in Dubai was Over the medium-term the growth recov- the dollar peg. The banking sector showed US$1,477 per-capita per month (US$1,293 ery will be driven by the government’s signs of recovery in 2018. The interest rate for non-Emirati households, US$734 for on certificates of deposit reached 2.5 per- collective households and US$511 for commitment to structural reform and cent following six consecutive hikes since labor camps). Family expenditure is low- stimulus plans by the large emirates. 2016. Inflation increased slightly in 2018 to er in the northern Emirates. FIGURE 1 United Arab Emirates / GDP growth rate FIGURE 2 United Arab Emirates / General government operations Percent change Percent of GDP Percent of GDP 5 2 33 32 1 4 31 0 3 30 -1 29 2 28 -2 1 Overall Fiscal balance (lhs) 27 -3 Total expenditure (rhs) 26 0 Total revenue (rhs) 2013 2014 2015 2016 2017 2018 2019p 2020p 2021p -4 25 est. 2015 2016 2017 2018 est. 2019p 2020p 2021p Sources: UAE authorities and IMF/World Bank Staff estimates. Sources: UAE authorities and IMF/World Bank Staff estimates. MPO 180 Apr 19 and higher imports related to infrastruc- Emirates. The main economic challenge Outlook ture development. Sluggish growth since 2014 prompted re- relates to adapting the UAE ’s successful but complex diversification model to forms and stimulus packages to preserve increasing competition among services Growth is expected to strengthen over the the UAE’s status as regional economic hubs and technological shifts away from medium term. In 2019 however, the pace of hub. One-hundred percent foreign owner- carbon as an energy source as North recovery will be muted by OPEC oil pro- ship of companies is now allowed. Bank American shale transforms the oil sector. duction cuts in the first half of 2019. Eco- guarantees for labor were replaced with Further economic diversification will nomic growth is forecast to reach 3.2 per- low-cost insurance policy, and visa re- require deepening labor -market and edu- cent by 2021 supported by the govern- quirements were overhauled to attract cation reforms to generate productivity ment’s economic stimulus plans, impetus skilled professionals. Dubai and Abu Dha- gains and openness in sheltered sectors. from hosting Dubai Expo 2020 and im- bi are exempting companies from adminis- Intergovernmental fiscal coordination proved growth prospects in trading part- trative fines, and Dubai slashed aviation and comprehensive fiscal/debt policy ners. Inflation is projected to moderate from and municipality fees. Abu Dhabi and framework are needed to maintain macro 3.1 percent in 2018 to 2.1 percent by 2021 as Dubai aim to establish themselves as a -fiscal stability, achieve fiscal consolida- the impact of the VAT rollout dissipates. destination for large events and tourism. tion, and improve the effectiveness of Budgets for 2019 signal spending increas- Dubai allocated US$7 billion for Expo 2020 government spending. The earlier con- es. The Dh 60 billion federal budget for related infrastructure, and Abu Dhabi solidation of property companies in the 2019, 17.3 percent higher than the 2018 completed the Louvre project to stake its wake of the 2009 slump is likely to be budget, is the largest in the country’s histo- claim as a tourist destination. UAE and repeated in the financial sector and air- ry. Although oil prices are expected to be Saudi Arabia signed a joint vision for eco- lines, given overcapacity. lower in 2019 than previous projections, nomic, developmental and military inte- Key risks to the outlook include a global the VAT revenue in 2019 is expected to gration, buttressing the prominence of slowdown, trade protectionism and other partially mitigate the loss in oil revenues. their bilateral relationship within the GCC. trade/payment disruptions, financial vola- Internal and external imbalances will pro- tility, disincentives to immigration with gressively subside. The fiscal deficit is pro- increased tax burden on foreigners, and jected to gradually improve, registering a surplus of 1.3 percent by 2021 driven by Risks and challenges regional instability. Hikes in U.S. interest rates or market volatility could increase higher oil prices, and non-oil revenues borrowing costs. Expo 2020 is exposed to from excise duties and the VAT. The cur- Key fiscal challenges include raising overcapacity, property prices and debt. rent account surplus is expected to contin- spending efficiency, revenue diversifica- Large investment projects, if not imple- ue to improve in 2019 but diminish slightly tion, and improving policy coordination mented prudently may create macro- by 2021 resulting from lower oil prices and management of fiscal risks across the financial risks. TABLE 2 United Arab Emirates / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2016 2017 2018 e 2019 f 2020 f 2021 f Real GDP growth, at constant market prices 3.0 0.8 1.6 2.6 3.0 3.2 Private Consumption 1.6 -1.3 2.5 3.0 3.1 3.3 Government Consumption -1.1 3.4 2.0 2.5 2.6 2.8 Gross Fixed Capital Investment 8.8 0.6 1.0 4.0 3.8 4.2 Exports, Goods and Services 3.4 0.5 2.1 2.7 3.3 3.6 Imports, Goods and Services 2.7 -1.0 2.6 3.2 3.4 3.8 Real GDP growth, at constant factor prices 3.0 0.8 1.6 2.6 3.0 3.2 Agriculture 3.4 3.0 1.0 1.5 2.2 1.9 Industry 3.1 -1.7 3.5 3.5 3.5 3.5 Services 2.9 2.4 0.5 2.1 2.6 3.0 Inflation (Consumer Price Index) 1.6 2.0 3.1 1.9 2.2 2.1 Current Account Balance (% of GDP) 3.7 6.9 7.2 7.8 6.4 5.6 Fiscal Balance (% of GDP) -2.0 -1.6 -1.6 0.6 1.0 1.3 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 181 Apr 19