United Arab Emirates

Staying afloat in the waves

Country Rating BB1


  • Regional co-operation through the GCC.
  • Abundance of natural resources (hydrocarbons).
  • Large asset holdings and investments held overseas. Net creditor status.
  • Actively diversifying economy.
  • Strong financial hub thanks to the Abu Dhabi sovereign wealth fund
  • Relatively liberal business and trading environment.
  • Solid fiscal and current accounts sound, despite some short-term effects from current weaker oil prices.


    • Despite diversification (including further developments in the transport and travel sectors), the economy overall is affected by the vagaries of international oil and gas markets.
    • High dependence on global and regional markets and events.
    • Fixed exchange rate peg to the USD limits independence of monetary policy.
    • Speculative flows (stock market, real estate etc.) provide some concern of asset bubbles.
    • Data provision is poor for a high income economy.



    Economic Overview

    GDP growth hardly back on track 

    The UAE has proven resilient despite the strong decline in oil prices in 2014-2015. Economic diversification has lowered oil-dependency (today oil accounts for only one third of total exports) and promoted non-oil growth, mainly in the financial and tourism sectors. Still, the overall economic cycle closely follows the oil price. 

    In 2016, real GDP growth fell to +2.3%, well below the +4.7% average rate achieved in 2012-2015. The slowdown is expected to continue this year (+2%) before a modest recovery to +3% in 2018 is fore-cast. Downward pressures on the economy include the extension of the OPEC deal to limit oil production until March 2018, announced in May 2017.


    Upside opportunities involve the expected recovery in oil prices in 2017 which will improve liquidity and bolster business sentiment in the medium term. Expo 2020 investments and an increase in the global trade momentum will also contribute to the growth acceleration starting 2018. 


    Fiscal measures reach their limits

    To limit the economic downturn triggered by the oil price crisis, the UAE implemented a fiscal adjust-ment scheme. The fiscal account was in surplus until 2014 before dropping to still managable nega-tive territory. The fiscal deficit bottomed out at -3.6% in 2016 (compared to -20% in Oman and -16% in Saudi Arabia). However, public debt is expected to rise from 46% of GDP in 2015 to 51% in 2017, limiting potential fiscal stimulus going forward.


    A stable management of currency issues

    The currency peg to the US dollar is forecast to be maintained, meaning that the Central Bank of the UAE will continue following the Fed’s monetary policy tightening, which could hamper exports through reduced competitiveness. Higher energy prices, subsidy cuts and the VAT introduction in 2018 will contribute to a rise in inflation from 1.2% at end-2016 to 3.1% in 2017 and 5% 2018. 


    Current account balance stabilizes

    The oil price crisis led to a sharp drop in the current account surplus from +10% in 2014 to +3.3% in 2015 and +2.4% in 2016. The recovery of oil prices should enable the surplus to improve gradually in the next years. The same dynamic will occur for external debt which peaked at 73% of GDP in 2016 but should slowly fall to 70% or so by  2018. In any case, huge foreign exchange reserves held by the Central Bank (USD84bn) and several sovereign wealth funds (USD1,300bn) provide the  UAE with a large liquidity cushion and a net creditor position.