The UAE's fiscal model is built for uncertainty

In the present geopolitical climate, characterized by geopolitical shifts and global economic challenges, nations must adopt strategic fiscal policies that balance stability and growth. The United Arab Emirates (UAE) has showcased its adeptness in navigating such complexities through a resilient economic system and balanced fiscal policies. The Ministry of Finance in the UAE plays a pivotal role, moving beyond traditional resource management to balance growth stimulation and sustainability.

Recent projections by the International Monetary Fund (IMF) indicate a slowdown in global growth, projected at about 3% this year and 3.4% next year, both below historical averages. Global inflation is also expected to rise to around 4.7% this year, driven by geopolitical uncertainties and escalating energy and transport costs, before gradually falling to approximately 3.9% next year.

Despite these global trends, the UAE's economy is projected to remain robust, with growth expected at about 3.1% this year, accelerating to 5.3% the following year. The UAE is recognized as a model of sustainable growth and prosperity, with progress in economic diversification and enhanced foreign investment attractiveness. Price stability is projected to hold, with inflation expected to remain at 2.5% this year, declining to 2.1% next year.

The UAE's fiscal strategy is anchored in diversifying the productive base and reducing reliance on traditional resources. This diversification has raised the contribution of non-oil sectors to approximately 79% of GDP, signaling a shift towards a more diversified economic foundation. The country's financial resilience is further highlighted by its sovereign wealth funds, valued at an estimated $2.49 trillion, placing the UAE third globally.

The federal budget for the year, amounting to Dh92.4 billion ($25.1 billion), reflects a commitment to fiscal balance for the second consecutive year, underscoring the UAE's capacity for efficient resource management. This fiscal discipline is supported by a consistent budget surplus of 5.6% of GDP over the past five years, reinforcing confidence in the sustainability of fiscal policies.

The UAE's creditworthiness and fiscal stability have been recognized by markets, evidenced by strong demand for the government's debt instruments, as seen in the March treasury bond auction where coverage reached 4.4 times and bids totaled $1.32 billion.

The launch of the UAE's first retail government treasury sukuk program achieved remarkable success, with subscription orders totaling Dh445 million for an initial issuance of Dh50 million, achieving coverage of about nine times. This demand reflects investor confidence in the UAE's strong financial position and the success of efforts to broaden the investor base for sovereign debt instruments.

The UAE's credit rating remains at "AA/A-1+" with a stable outlook from S&P Global Ratings and Moody's, further solidifying its reputation as a nation with a resilient financial framework.