The UAE's fiscal model is built for uncertainty

The United Arab Emirates (UAE) has developed a fiscal model that is uniquely suited to navigate the uncertainties inherent in today's global financial landscape. This model strikes a balance between stability and growth, a crucial aspect in the face of ongoing geopolitical developments and economic challenges.

The UAE's economic resilience has been demonstrated time and again, with its ability to respond effectively to regional and international trends. This resilience is underpinned by a robust economic system and prudent fiscal policies that have bolstered stability and fostered sustainable growth.

The Ministry of Finance in the UAE plays a strategic role, beyond traditional resource management, in balancing growth promotion and sustainability. This is evidenced by the establishment of legislative and digital frameworks, and improvements in spending efficiency. These measures aim to enhance confidence and financial stability.

Recent estimates from the International Monetary Fund (IMF) suggest a slowdown in global growth, with global growth projected at about 3 percent this year, and 3.4 percent next year. Inflation is also expected to rise to about 4.7 percent this year, before gradually declining. Despite these global trends, the UAE economy is projected to maintain resilience, with growth forecasted at 3.1 percent this year, and a significant acceleration to 5.3 percent next year.

The UAE's fiscal approach focuses on diversifying the productive base and reducing dependence on traditional resources. This strategy has led to non-oil sectors contributing about 79 percent of the gross domestic product (GDP), signaling a shift towards a more diversified economic foundation.

The UAE's financial strength is further bolstered by the assets of its sovereign wealth funds, which amount to approximately $2.49 trillion, placing the UAE third globally. This diversification limits exposure to market fluctuations, providing a more resilient base for financial planning and development continuity.

The UAE's fiscal discipline is demonstrated through its annual budget, which amounted to Dh92.4 billion in 2022. This budget reflects a commitment to balance for the second consecutive year, highlighting the country's capacity to manage resources efficiently. The budget surplus, equivalent to 5.6 percent of GDP over the past five years, further strengthens confidence in the sustainability of fiscal policies.

These fiscal policies have been well-received by markets. The demand for the government's debt instruments reached 4.4 times, with bids totaling $1.32 billion at the March treasury bond auction. This reflects broad recognition of the strength of the fiscal framework. Additionally, the successful launch of the UAE's first retail government treasury sukuk programme attracted significant interest, achieving coverage of about nine times the initial issuance size.

The UAE's credit rating is maintained at "AA/A-1+" by S&P Global Ratings, with a stable outlook. Moody's also affirms the UAE's creditworthiness. These ratings underscore the UAE's fiscal sustainability and its ability to balance development spending with financial stability.

Overall, the UAE's fiscal model stands as a testament to the country's ability to adapt and thrive in an environment characterized by uncertainty. This model not only ensures economic stability but also supports sustainable growth and prosperity, making the UAE a model of fiscal readiness in the global arena.