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IMF predicts robust growth for the UAE economy, driven by oil revenues

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Over the medium term, increasing non-oil revenue will be supported by the gradual implementation of a corporate income tax, which started in June 2023

According to the International Monetary Fund (IMF), the UAE’s economy continues to expand as a result of robust domestic activity and significant fiscal and external surpluses brought on by high oil prices.

“This year (2023), the whole real GDP is predicted to increase by 3.5%,” said a statement released on October 16 after the conclusion of the most recent staff visit.

Ali Al Eyd, Advisor and Mission Chief at the International Monetary Fund, has now predicted that average inflation in the Emirati would remain under control at around 3% in 2023, down from 4.8% in 2022.

The outlook is favourable in the short term, but the fund issued a warning due to increased global risks and unpredictability.

Slower global growth, higher interest rates for a longer period, tighter financial conditions, or geopolitical developments would all weigh on GDP and put a strain on fiscal and external balances, according to the IMF.

The UAE’s 2024 OPEC+ production quota rise is predicted to cause hydrocarbon GDP growth to pick up the following year after the OPEC+ output cuts slow it down in 2023.

The UAE’s haven status, along with social and business-friendly changes, continue to draw foreign labour and capital inflows, supporting growth and driving up real estate prices overall, but especially in high-end segments.

“Due to the high price of oil, fiscal and external surpluses remain strong. In 2023, the fiscal balance is anticipated to be 5% of GDP, driven by oil revenue and robust economic growth,” the IMF prediction stated further.

Over the medium term, increasing non-oil revenue will be supported by the gradual implementation of a corporate income tax, which started in June 2023.

With the benefit of the Dubai Emirate reducing its public debt by 29 billion dirhams through its Public Debt Sustainability Strategy, public debt is expected to continue to shrink and fall solidly below 30% of GDP in 2023.

In 2023 and 2024, the current account surplus is anticipated to be significantly higher than the medium-term average.

Overall, banks are sufficiently capitalized, but risks to financial stability must be continuously and carefully monitored.

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