of GDP. The Federal Tax Authority intro- UNITED ARAB duced excises on tobacco and sugary Recent developments drinks, Abu Dhabi increased municipality fees and Dubai increased hotel, airport EMIRATES Although the non-oil economy is showing signs of recovery, OPEC+ oil production and parking fees. The fiscal deficit was financed through withdrawals from the cuts continued to restrain the UAE’s over- sovereign wealth funds (total assets esti- all economic growth in 2017 which is esti- mated at US$1.3 trillion), bank borrowing mated to have moderated to 2 percent in and, increasingly, by foreign capital rais- Table 1 2017 2017 down from 3 percent in 2016. Hydro- ing. Abu Dhabi raised US$10 billion in Population, million 9.4 carbon GDP growth is estimated to have October from a series of bond offerings, GDP, current US$ billion 378.4 contracted by 3 percent in 2017 from 5.4 with maturities ranging up to 30 years. A GDP per capita, current US$ 40266 percent growth in 2016. The non- further issuance is expected in Q1 2018, as School enrollment, primary (% gross) a 116.3 hydrocarbon sector is estimated to have yields remain very attractive given the a driven growth in 2017 reflecting higher strong liquidity profile of UAE entities. Life expectancy at birth, years 77.5 public investment and a pickup in tourism The Central Bank has mirrored the US Source: WDI, M acro Poverty Outlook, and official data. and global trade. According to the PMI, Federal Reserve movements to maintain Notes: private sector activity increased in late the peg—interest rates were raised four (a) M ost recent WDI value (2015) 2017 reaching the highest level since 2015. times by a total of 75 basis points. The Consumers and firms brought forward consolidated growth in credit slowed to planned consumption before the introduc- 1.7 percent in December (y-oy), due to tion of the VAT in 2018. Inflation in- weak demand for credit in Abu Dhabi. creased by only 0.3 percentage points in Annual growth in deposits remained sta- Non-hydrocarbon growth is estimated to 2017 reflecting a significant decline in ble at 4.1 percent in December. have remained resilient in 2017 while rents, which has mitigated higher import The 2014 oil price shock and its impact on OPEC-mandated oil production cuts lim- and gasoline prices. The current account government finances and regional liquidi- surplus is expected to deteriorate only ty prompted substantial reconsideration ited hydrocarbon growth. Economic per- slightly to 2 percent of GDP in 2017 owing of UAE’s policy direction – but the recent formance is likely to improve in 2018 with to subdued oil exports. upward trend in oil prices may reduce firming oil prices, an improvement in Fiscal consolidation efforts that began in reform momentum. Excise duties on global trade, and the expected easing pace 2015 with subsidy reform (fuel, electricity drinks and tobacco were introduced and and water) continue, but at a slower pace. VAT became effective this year, albeit at a of fiscal adjustment, especially as invest- The decline in oil prices in 2014 had low rate of 5 percent and with several ments ramp up ahead of Dubai’s Expo pushed the consolidated fiscal balance exemptions. The VAT is being used to 2020. However, this rebound is faced with down from a surplus of 10.4 percent of develop a system of intergovernmental several downside risks including lower oil GDP in 2013 to a 4.3 percent deficit in fiscal transfers through a revenue sharing prices and tighter global financial condi- 2016. However, in 2017, despite higher formula across emirates, which was previ- capital spending, the recovery of oil prices ously ad hoc. Abu Dhabi has initiated oil tions. and some revenue measures are expected sector and financial management reforms. to improve the fiscal deficit to 3.1 percent Focus on diversification continues as the FIGURE 1 United Arab Emirates / GDP growth rate FIGURE 2 United Arab Emirates / Government Operations (percent per annum) (as share of GDP) % change % of GDP % of GDP 8 3 40 Real GDP growth 2 35 7 1 30 6 0 25 5 -1 20 4 -2 15 3 -3 10 2 -4 5 1 -5 0 2014 2015 2016 2017e 2018p 2019p 2020p 0 Overall Fiscal balance Total expenditure 2011 2012 2013 2014 2015 2016 2017e 2018p 2019p 2020p Total revenue Sources: UAE authorities and IMF/World Bank Staff estimates. Sources: UAE authorities and IMF/World Bank Staff estimates. MPO 1 Apr 18 government targets an 80 percent contri- satisfaction in the middle class and have higher oil prices, improved oil production bution to UAE GDP from non-oil sectors increased social allocations to improve capacity and higher non-oil revenues, the by 2021 (currently 70 percent). The author- welfare, housing affordability, education fiscal deficit is projected to reverse by ities are seeking to boost private-sector and healthcare provision for nationals. 2020. Inflation is projected to rise to 2.9 engagement, including through equity Moreover, the government plans to allo- percent in 2018 due to the VAT but is pro- participation in some GREs. Dubai will cate 70 percent of VAT revenue to local jected to moderate thereafter. also focus on improving financial, real services, as officials seek to build public estate and internet regulations and infra- support for the tax. structure, to boost its appeal to foreign investors. The UAE is stepping up efforts Risks and challenges to pioneer the use of modern technologies; with plans to develop smart cities, use Outlook Risks to the outlook are skewed towards blockchain technology for government the downside. The remission in oil price transactions, and undertake financial tech- Beyond 2017, overall GDP growth is ex- volatility may not last, for instance, due to nology projects. pected to recover to above 3 percent in the a faster recovery of the US shale produc- Each Emirate has an independent statistics medium term. Oil production capacity is tion or reduced compliance with OPECs agency, and while the federal-level statis- expected to increase and the strength of oil production cuts, which could reduce tical bureau was established in 2009, the the non-oil economy will boost prospects fiscal revenues, and consequently invest- harmonization of statistical agendas for a particularly later in the forecast period as ment, and confidence. A faster rise in US country-level welfare measurement is yet megaproject implementation ramps up interest rates or higher financial market to be accomplished. Poverty is not seen as ahead of Dubai’s hosting of Expo 2020— volatility could increase borrowing costs, a serious issue among the national popu- expected to draw in 25 million visitors, potentially affecting liquidity in the do- lation. Information on living standards is boosting private consumption and ser- mestic banking system. Contingent liabili- infrequent, lagged and of unknown quali- vices exports. Export earnings will pick up ties continue to be a risk and if megapro- ty. Results from the 2014/15 household gradually, with non-oil goods trade and jects, including for Expo 2020, are mis- survey show the average consumption for services outpacing oil export growth, alt- managed, risks for GREs, banks, and sov- Emirati household in Dubai was US$1,477 hough the current account will remain in ereigns would rise. More difficult to quan- per-capita per month (US$1,293 for non- modest surplus. The 2018 budgets pre- tify are risks related to the UAE’s protract- Emirati households, US$734 for collective sented by different emirates and the feder- ed role in conflict countries in the region, households and US$511 for labor camps). al government over the last few months notably Yemen and Libya. Upside risks Family expenditure is lower in the north- are expansionary, with Dubai’s budget include increased international economic ern Emirates. However, the authorities containing a notable uptick in infrastruc- engagement with Iran, for which the UAE recognize the potential for economic dis- ture spending. However, on the back of functions as the key offshore hub. TABLE 2 United Arab Emirates / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 3.8 3.0 2.0 2.5 3.2 3.3 Private Consumption -12.0 2.1 1.0 3.2 3.5 3.7 Government Consumption 16.6 -0.9 -0.5 2.0 2.2 2.3 Gross Fixed Capital Investment 10.6 3.0 2.8 6.0 5.9 5.8 Exports, Goods and Services 3.4 1.3 2.5 3.5 3.8 3.8 Imports, Goods and Services -1.2 2.5 2.1 3.1 3.3 3.7 Real GDP growth, at constant factor prices 3.8 3.0 2.0 2.5 3.2 3.3 Agriculture 3.1 3.0 2.0 3.0 3.2 3.2 Industry 4.6 2.3 2.1 2.3 3.0 5.2 Services 2.8 3.8 1.9 2.7 3.4 1.2 Inflation (Consumer Price Index) 4.1 1.6 2.0 2.9 2.3 2.4 Current Account Balance (% of GDP) 4.7 2.4 2.0 2.1 2.5 2.7 Fiscal Balance (% of GDP) -3.4 -4.3 -3.1 -2.0 -1.0 -0.3 Source: World Bank, Poverty & Equity and M acroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. MPO 2 Apr 18