United Arab Emirates / Economic Studies - Coface

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HOME ECONOMIC STUDIES UNITED ARAB EMIRATES

POPULATION

9.3 MILLION

A4

A3

COUNTRY RISK
ASSESSMENT

BUSINESS
CLIMATE

GDP PER CAPITA

42,944 US$

SYNTHESIS

MAJOR MACRO ECONOMIC INDICATORS

2013

2014

2015 (f)

2016(f)

GDP growth (%)

4.3

4.6

3.1

3.3

Inflation (yearly average) (%)

1.1

2.3

3.7

3.0

Budget balance (% GDP)

10.4

5.0

-5.5

-4.0

Current account balance (% GDP)

18.4

13.7

2.9

3.1

Public debt (% GDP)

15.9

15.7

18.9

18.3

(f) Forecast

STRENGTHS

WEAKNESSES

Among the most diversified economies in the

Middle East
Importance of Abu Dhabi, which holds about 90%
of the UAE's substantial hydrocarbon reserves
Dubai's growing importance in services (regional
business centre, world's seventh largest port)
Important financial base thanks to the Abu Dhabi
sovereign fund (ADIA)
The political stability of the Federation

Diverse economies, still dependent on Abu

Dhabi's hydrocarbon revenues
High external debt of Dubai's para-public entities
Para-public entities and businesses lack
transparency
Problem of demographic balance, due to size of
the foreign population

RISK ASSESSMENT
Economic slowdown in 2015, but acceleration expected in 2016

http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates

7/24/2016

United Arab Emirates / Economic Studies - Coface

Page 2 of 2

Supported by a robust non-hydrocarbon economy, the United Arab Emirates showed a degree of resilience to the fall
in hydrocarbon prices in 2015 and this trend will remain in 2016. Construction, tourism and financial services will
continue to be the main economic props. However, the hydrocarbons sector should be penalised by low oil prices and
a decline in investment.
Household consumption will continue to fuel economic growth, pushing wages above inflation, while public investment
will decline, limited by the drop in oil income. The Abu Dhabi authorities, whose income was most affected by the low
price per barrel, have made investment projects a priority, while Dubai's economy will continue to be supported by
upstream investment in the World Expo 2020 (in particular the extension of the metro network). The overall level of
prices is expected to weaken in 2016 following the rise in inflation observed in 2015, which is partly explained by the
various adjustments made by the authorities to electricity and water prices.
Decline in oil revenues and development of a public deficit
Since 2015, the UAE has run a substantial public deficit resulting from shrinking oil revenues. The public deficit will
remain in 2016, but will be lower than that recorded in 2015: this is because, from 2015, the authorities embarked on a
set of measures aimed at dealing with weak budget revenues, such as the reform of energy subsidies together with
deregulation of domestic hydrocarbon prices and an increase in electricity and water prices. Other fiscal measures
such as the introduction of corporation tax or value-added tax are being studied and could be implemented in 2016.
Given the Federation's substantial assets held in the Abu Dhabi and Dubai sovereign funds, the UAE's sovereign risk
will remain limited, even though the public debt increased considerably in 2015. It is expected to stay at a similar level
in 2016. Meanwhile, the banking sector remains well capitalised, profitable and liquid. Furthermore, the UAE's central
bank has strengthened the regulations governing the banking system's exposure to the debt of public entities and the
property sector.
Despite deteriorating sharply, the current account balance will remain in positive territory
Exports, hampered by the fall in oil export revenues in 2015, will benefit greatly from the opening of the Iranian market
in 2016. The increase in re-export activity associated with this opening is expected to foster the growth of non-oil
exports, both in Dubai, where this activity represents 60% of exports, and in Abu Dhabi. Imports will increase to a
lesser extent but will remain buoyant, thanks to the appreciation of the US dollar to which the Emirati dirham is pegged.
The current account balance will remain in positive territory in 2016, up on that of 2015, but will, nonetheless, be well
below the levels observed in previous years. The United Arab Emirates is still an attractive destination for FDIs.
However, a change in direction of US monetary policy could impinge on the UAE's safe-haven status in the region.
Away from the tensions in the Arab world
Considered as a safe-haven following the political troubles and security issues in the region since 2011, the UAE has
been spared by the difficult security climate in the region. It is, however, militarily involved in Yemen and Iraq as part of
both a Saudi and an international coalition. Regarding the Emirates' internal politics, in 2015 the Federation re-elected
the representatives of the Federal National Council with a much higher participation rate than in 2011.
The business climate is seen as one of the most favourable in the region, despite a lack of transparency in the
accounts of public entities and businesses. In addition the "Emiatization" of jobs which results in recruitment being
based on nationality, could curtail foreign investment.
Last update: January 2016

http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates

7/24/2016