The UAE's economy is at a "turning point" as government-led stimulus, Expo 2020 investment, higher oil prices and a pause in monetary tightening by the Federal Reserve, accelerate growth momentum, the IMF said.
Domestic credit growth, higher employment and greater tourist numbers will continue to underpin economic activity, even as the real estate sector faces overhang of supply, the IMF noted in its report after completing its mission to the Emirates "to update itself on recent developments and the economic outlook and to discuss macroeconomic policies".
“The UAE economy has gone a long way toward diversification, but government spending and some sectors are still affected by oil price fluctuations," it said.
New growth drivers that are decoupled from oil prices would be needed to sustain strong growth after Expo 2020, with the onus on the authorities to continue building on ongoing structural reform, the report added.
The UAE is expected to be among the fastest-growing Gulf economies this year with a projected 2.6 per cent expansion on the back of continued infrastructure spending and economic stimulus, the World Bank said last week. The multilateral institution had also forecast a similar level of GDP growth at 3 per cent by 2020.
The IMF in its latest circular on the UAE economy observed that strengthening the enabling environment for small and medium-sized businesses and encouraging foreign direct investments were additional priorities. The institution also urged leveling of the playing field between government-backed entities and the private sector to foster productivity and diversification of the economy.
A less fragmented labour market would work in favour of the government's goal to drive more participation of Emiratis in the private sector. The IMF also noted that the government meanwhile should build on existing efforts to ensure that the UAE continues to attract and retain expatriate talent.
The IMF remained positive on the government's adoption of a federal debt law and efforts by the central bank to strengthen the financial system, particularly its moves towards adopting Basel III and the International Financial Reporting Standards (IFRS) 9. The issuance of local currency government securities should also proceed in order to establish a benchmark yield curve, added the lender.
Washington-based IMF urged greater information-sharing among federal and emirate-level authorities to co-ordinate decisions that lead to improved policy outcomes.
"A more explicit medium-term fiscal framework, involving rules guiding the balance between economic stabilidation and saving for future generations, would also be beneficial," it added.