Provided by CountryRisk.io
The United Arab Emirates’ macroeconomic condition has markedly deteriorated in the wake of the global pandemic, stemming from an already fragile backdrop. The IMF expects the economy in the UAE to contract by 6.6% yoy in 2020 after growing 1.7% in 2019, owing to lower world oil prices, substantial cuts in oil production, supply chain disruption and lower tourism levels, to name a few. Moreover, the government’s consolidated deficit is expected to widen to 10% of GDP from just below 1% in 2019 due to authorities’ wide-ranging efforts to support the economy – with the attendant rise in public sector debt to just below 40% of GDP. While this may be substantially lower when compared to its regional peers, it illustrates a steady increase in trend levels since 2018, and is nearly twice as much as the average of around 20% of GDP during the previous five years, i.e., since 2013.
The economy is projected to rebound by around 1.35% in 2021 (based on IMF forecast, World Economic Outlook October 2020) – below the pre-crisis level – reflecting uncertainties over the global economic recovery and associated impact to the UAE’s hydrocarbon and non-hydrocarbon economy. A lacklustre growth, when combined with just a gradual narrowing in the public deficit and steady debt levels at around 38% of GDP in the coming years is expected to weigh on the country’s credit quality. However, this is mitigated by its strong external metrics such as its large current account surplus, positive net external debt and strong net international investment position.
With investors placing more and more weight on environmental, social and governance factors, the UAE’s efforts to address its commitments to meet the SDG goals by 2030 are remarkable and ambitious. Challenges abound due to the UAE’s high exposure to climate change transition risks in de-carbonizing the economy, hence the implementation remains to be seen.
Chart 1: CountryRisk.io Shadow Rating for United Arab Emirates