The UAE’s GDP growth will retreat to 3.6% in 2013 from 4.3% the year before as the hydrocarbons sector’s contribution will decline over the next five years, the IMF said in an Article IV report. But the developing non-hydrocarbons sector will help the UAE’s real GDP growth remain at an average of 3.6% during the 2013-2018 period. A sustained recovery in construction and real estate and the ongoing growth in tourism-oriented sectors will lift the UAE’s non-oil GDP growth to 4.3% in 2013 from 3.8% a year before. The hydrocarbon-GDP expansion will, however, brake to 2.1% from 5.2% in 2012 as growth in global oil demand remains weak amid expanding world supply.  CPI inflation will quicken to a still reasonable 2.0% in 2013 from 0.7% a year earlier as the housing market continues its recovery, the IMF said.

The IMF underscored the UAE’s promising medium-term growth and diversification prospects. Dubai is seeking to build on its successes in becoming a regional services hub and has recently announced plans for several megaprojects in real estate and tourism, including the Mohamed bin Rashid City. If Dubai succeeds in its bid for the World Expo 2020, the implementation of many of these plans will likely accelerate, the IMF noted. Abu Dhabi, meanwhile, continues to expand its hydrocarbon production capacity. The emirate’s economic diversification strategy relies mainly on manufacturing, petrochemicals, aviation, renewable energy, and cultural tourism, the IMF said.

The fund praised the UAE’s fiscal consolidation plans. Both Abu Dhabi and Dubai target continued gradual consolidation in their non-oil balances through 2017. The plans aim to correct the UAE’s long-term intergenerational fiscal imbalances, reduce oil-price related risks, and, in the case of Dubai, address debt-related concerns, the IMF noted. “Fiscal consolidation should be supported by reductions in energy subsidies, which will create fiscal space while improving energy efficiency,” the fund advised.

As to Dubai’s debt, it currently totals USD 142bn, accounting for 102% of the emirate’s GDP, the IMF said. Some USD 35bn are in government and government-guaranteed debt. Dubai’s GREs (state-affiliated entities) saw their debt increase to USD 93bn at end-2012 from USD 84bn in March last year. Some USD 60bn of the GREs’ debt is due between 2013 and 2017, the IMF said. This reportedly includes GREs which are operating on a commercial basis and borrow on their own credit strength.