UAE economy resilient despite tapering fiscal surplus
According to a recent report from the National Bank of Kuwait (NBK), the UAE's fiscal surplus is projected to decline from an estimated 5.5 per cent of GDP in 2024 to four per cent over 2025-2026. Despite this, the country's GDP growth is forecasted to average 4.2 per cent during the same period, driven by higher oil output and sustained non-oil sector resilience.
The International Monetary Fund (IMF) echoes this optimism in its latest Fiscal Monitor, highlighting the UAE's strong public finances. In 2024, the UAE achieved an overall budget surplus of 4.8 per cent of GDP, which accounts for all government expenditures, including debt interest payments.
Looking ahead, the IMF projects a surplus of 2.9 per cent of GDP in 2025 and 2026, gradually rising to four per cent by 2030. This comprehensive fiscal reporting, which includes federal, local, and social security funds, underscores the UAE's prudent financial management.
The IMF's World Economic Outlook, released days earlier, further supports this positive trajectory, forecasting real GDP growth of 4 per cent in 2025 and 5 per cent in 2026. However, external risks, such as lower oil prices and potential trade disruptions from US tariffs on iron, steel, and aluminum, could temper this growth. NBK notes that these factors may dampen investor sentiment and reduce the UAE's current account surplus to 2.3 per cent of GDP by 2026. Despite these challenges, the UAE's economy is underpinned by its ambitious diversification efforts and global competitiveness.
NBK emphasises that government spending is set to rise by 3.6 per cent over 2025-2026, with increased allocations for infrastructure, social benefits, and initiatives to reduce reliance on hydrocarbons. 'The UAE's attractiveness to tourists, labor, capital, and businesses, supported by its investment and diversification agenda, provides underlying resilience,' the NBK report states.
These efforts are critical as the non-oil sector, a key growth driver, may experience slower expansion due to elevated interest rates and increased property supply. The real estate market, a significant component of the non-oil economy, faces mixed dynamics. While anticipated interest rate cuts could bolster demand, higher supply and stricter regulations may limit sales and price growth over the next two years. This balancing act highlights the UAE's challenge in maintaining economic momentum amid global uncertainties.
Daniel Richards, senior economist at Emirates NBD, notes that lower oil prices will impact budget balances across the GCC, including the UAE. 'We now forecast a surplus equivalent to 1.8 per cent of GDP in 2025, down from our previous projection of 2.7 per cent,' Richards explains.
This represents a decline from the estimated 3.4 per cent surplus in 2024, though final figures for last year are still pending. The UAE's ability to navigate these headwinds lies in its proactive reforms and international appeal. Investments in technology, renewable energy, and tourism continue to diversify revenue streams, reducing dependence on volatile oil markets. Additionally, the country's strategic positioning as a global trade and finance hub enhances its economic stability.
Economists argue that while lower oil prices pose challenges, the UAE's forward-thinking policies and robust fiscal framework position it to weather the storm. 'By prioritising diversification and maintaining a competitive edge, the UAE is poised to sustain growth and resilience, even as global economic uncertainties loom. As the nation balances increased spending with fiscal discipline, its economic outlook remains a beacon of stability in a turbulent global landscape.'
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