United Arab Emirates WT/TPR/S/262/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. The economy of the UAE has developed a str ong services sector due to the strategy of 
diversification implemented during the last decade,  but the oil industry continues to be of prime 
importance.  Abu Dhabi produces 95% of the country 's oil and gas, and owns one of the largest 
sovereign wealth funds in the world.  Dubai, the second largest emirate, has a more diversified 
economy, driven by re-export trade, services, and real estate. 
2. After a period of fast growth, boosted by inv estment and construction, the economy of the 
UAE was strongly affected by the global financial cr isis, which led to a sharp contraction of GDP in 
2009.  The crisis also led to an increase in debt, pa rticularly of Dubai's government-related enterprises 
(GREs). 
3. The Federal Government reacted to the crisis by applying strong countercyclical monetary 
and fiscal policies and by adopting rescue packages for GREs, including an important debt restructuring.  All in all, there was a strong tran sfer of resources from the oil-producing emirate of 
Abu Dhabi, to the more service-oriented emirate of Dubai, which was the hardest affected by the 
crisis.  Departing from a situation of traditional surplus, as a result of the crisis, the federal 
Government ran fiscal deficits in 2009 and 2010;  howeve r, due to acceleration in oil revenues, the 
fiscal accounts are expected to have  shown a surplus again in 2011. 
4. As a result of the measures applied and to an increase in oil prices, the UAE economy started 
to emerge from the crisis in 2010, with real GDP growing by 1.4%.  The global crisis had the effect of 
cooling off the economy, stopping the acceleration in  price increases observed in the 2005-08 period.  
However, as growth resumes, inflation is forec ast to accelerate somewhat, although to below the pre-
crisis levels. 
5. Exports of goods increased rapidly throughout 2 006-08, but declined by some 17% in 2009, 
reflecting lower oil prices and the global economic cr isis.  Imports followed a similar pattern, but both 
exports and imports started to recover in 2010 as grow th picked up.  The UAE runs a structural trade 
balance surplus, which peaked at US$62.9 billion in  2008, declined in 2009 as a consequence of a 
considerable drop in oil exports and despite a re duction in imports, and increased again in 2010 in 
2011, mainly due to higher non-hydrocarbon exports and re-exports. 
(2) S
TRUCTURE OF THE ECONOMY  
6. The United Arab Emirates (UAE) is a federation of seven emirates:  Abu Dhabi, Ajman, 
Dubai, Fujairah, Ras al-Khaimah, Sharjah, and U mm al-Quwain;  Abu Dhabi City is the federal 
capital.  The UAE has 85% of world oil reserves and the fifth largest gas reserves (Chapter IV(4)).  The authorities estimate that these reserves will last mo re than 100 years at current production rates.  
The UAE has a federal structure and there are many common policies at the federal level, including monetary policy, but each emirate ma nages its own budget independently. 
7. The three major emirates, in terms of partic ipation in GDP, are Abu Dhabi, Dubai, and 
Sharjah.  Abu Dhabi accounts for over 50% of the UAE 's total GDP, some 40% of the population, and 
95% of crude oil and gas production.  Mainly resultin g from the proceeds of its oil and gas industries, 
Abu Dhabi owns one of world's largest sovereign w ealth funds, and is estimat ed to have more than
 
US$300 billion assets under management.1  Dubai, the second largest emirate in terms of economic 
                                                      
1 IMF (2011a). WT/TPR/S/262/Rev.1 Trade Policy Review 
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size, accounts for about a third of the UAE's total GD P.  Dubai has a more diversified economy, with 
a large financial sector, as well as a developed air tran sport industry and tourism sector (Chapter IV).  
Dubai also plays the role of regional commercial hub and is an important tr anshipment and re-export 
centre. 
8. In 2010, total GDP reached US$297.65 billion (Table I.1);  with a population of some 
8.26 million, GDP per capita was some US$36,017.  In 2010, the UAE ranked 32nd out of 
179 countries in terms of the UNDP Human Development Indicators. 
Table I.1 
Economic indicators, 2005-10 
 2005 2006 2007 2008 2009a 2010 
National accountsb       
GDP (AED billion) 663.3 815. 7 948.1 1,156.3 992.8 1,093.1 
GDP (US$ billion) 180.6 222.1 258.2 314. 8 270.3 297.6 
Real GDP, annual percentage cha nge 4.8 9.9 3.2 3.3 -1.6 1.4 
Real hydrocarbon GDP 2.3 11.2 -7.1 -2.3 3.9 -5.6 
Real non-hydrocarbon GDP 6.4 9.1 9.4 6.2 -4.2 5.0 
GDP by economic activity (share of GDP (%))b       
Agriculture, livestock and fishing 1.4 1.1 1.0 0.8 1.0 0.9 
Mining and quarrying 34.4 37.5 33.9 37.1 29.1 31.6 
Crude oil and natural gas 34.3 37.4 33.8 37.0 28.9 31.5 
Quarrying 0.1 0.2 0.2 0.1 0.1 0.1 
Manufacturing industries 10.6 9.7 9.0 8.6 10.1 9.7 
Electricity, gas and water 1.9 1.9 1.8 1.8 2.4 2.6 
Construction 8.7 8.9 10.0 10.6 11.8 11.6 
Services 46.3 44.0 47.9 45.0 50.4 48.0 
Wholesale retail trade and repairing services 13.6 13.1 13.9 12.8 13.5 12.8 
Restaurants and hotels 2.0 1.9 1.9 1.8 2.1 2.1 
Transports, storage and communication 7.9 7.6 8.0 7.7 9.3 9.1 
Real estate and business services 10.7 10.0 11.7 10.9 10.7 9.9 
Financial sector 6.4 6.3 7.2 6.3 7.2 6.8 
Government 3.5 3.0 3.0 3.3 4.8 4.6 
Other services 2.2 2.1 2.1 2.2 2.7 2.8 
Social and personal services 1.8 1.7 1.8 1.8 2.3 2.4 
Domestic services of households 0.4 0.4 0.4 0.4 0.4 0.4 
(Less:  imputed bank services) 3.3 3.0 3.6 3.9 4.7 4.4 
 (% of GDP) 
Final consumption expenditure 65.1 64.0 68.3 68.3 70.6 67.7 
Government expenditure 6.9 6.2 5.9 5.8 9.0 8.2 
Private expenditure 58.3 57.8 62.3 62.5 61.7 59.4 
Gross fixed capital formation 18.4 17.4 23.0 21.2 22.3 23.8 
Change in stocks 0.9 0.8 0.8 1.3 1.6 1.5 
XGS / GDP (%) 67.6 68.6 72.3 79.0 74.7 75.3 
MGS/ GDP (%) 52.0 50.8 64.4 69.8 69.2 68.2 
Table I.1 (cont'd)  United Arab Emirates WT/TPR/S/262/Rev.1 
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 2005 2006 2007 2008 2009a 2010 
Consolidated government finances (US$  billion, unless otherwise indicated) 
Total revenue 53.6 74.9 85.3 121.7 68.3 85.8 
  Hydrocarbonc 41.0 59.0 63.6 98.4 47.4 65.1 
  Non-hydrocarbon 12.5 15.9 21.7 23.2 20.9 20.6 
  Customs 1.0 1.3 2.2 2.4 2.2 2.3 
  Profit transfers  1.3 1.5 3.5 1.4 1.1 1.1 
  Income taxd 0.1 0.3 0.2 0.3 0.4 0.4 
  Fees and charges 4.1 3.7 2.6 6.5 6.6 6.9 
  Investment incomee 3.7 6.3 8.4 6.3 4.5 3.6 
  Other  2.4 2.8 4.8 6.3 6.1 6.4 
Total expenditure and grants 28.4 34.7 45.7 70.7 103.9 92.1 
  Current expenditure  22.9 29.0 34.7 47.0 58.9 67.7 
  Wages and salariesf 4.3 4.9 5.7 7.9 8.9 9.1 
  Goods and services  6.9 6.9 9.9 13.4 18.4 23.1 
  Abu Dhabi "federal services"g 6.2 6.9 8.5 12.4 15.2 19.7 
  Subsidies and transfersh 5.3 10.1 9.9 11.2 12.4 10.3 
  Interest payments 0.0 0.0 0.1 0.8 1.6 2.6 
  Other  0.2 0.2 0.5 1.3 2.4 2.9 
  Development expenditure 3.8 3.2 4.7 8.6 12.3 10.5 
Loans and equity (net)i 1.4 2.4 5.7 14.1 31.8 13.6 
Foreign grantsj  0.3 0.1 0.6 1.0 0.9 0.3 
Overall balance (consolidated)k 25.1 40.2 39.8 51.8 -33.9 -3.8 
Overall balance (consolidated), % of GDP 13.9 18.1 15.4 16.5 -12.6 -1.3 
Non-hydrocarbon balance (excl. investment in come) -16.5 -13.7 -18.9 -26.7 -44.7 -36.5 
Non-hydrocarbon primary balance (excl. investment income) .. .. -18.8 -26.3 -43.9 -35.2 
Abu Dhabi Overall balance (% of Abu Dhabi's GDP) .. .. 15.2 16.0 -19.7 -8.1 
Abu Dhabi Non-hydrocarbon balance (excl. invest ment income) .. .. -48.8 -61.4 -79.3 -69.8 
Abu Dhabi Non-hydrocarbon primar y balance (excl. investment 
income) .. .. -48.8 -61.5 -79.5 -70.0 
Dubai's Overall balance (% of Dubai's and northern emirates 
GDP) .. .. -0.3 -1.8 -13.9 -4.9 
External sector (US$ billion, unless otherwise indicated) 
Trade balance (goods) 42.8 57.5 46.5 63.8 42.5 63.5 
Exports 117.3 145.6 178.6 240.1 192.2 221.9 
Exports of oil and products 49.3 62.9 65.7 91.4 59.6 66.8 
Imports -74.5 -88.1 -132.1 -176.3 -149.7 -158.3 
Services, net -14.6 -18 -26 -33.8 -27.4 -28.1 
Current account balance  20.9 33.9 15.4 23.3 8.2 23.3 
Current account balance (% GDP) 11.6 15.3 6 7.4 3 7.7 
Capital and financial account  0.1 0.7 27.9 -19.9 9.3 2 
Overall balance 2.5 6.6 49.9 -46.8 -6 7.3 
Gross reserves of Central Bank 21.3 28 77.9 30.9 24.7 32 
Local currency per U.S. dollar (period average) 3.7 3.7 3.7 3.7  3.7  3.7 
Nominal effective exchange rate (2000=100) .. .. 86.1 84.2 88.3 87.5 
Real effective exchange rate (2000=100) .. .. 99.8 102.8 107.9 103.7 
Monetary sector       
Money and quasi money (M2) (AED billion)  324,064 399,293 565,702 674,310 740,618 786,388 
Money and quasi money (M2) (annual % change) 33.8 23.2 41.7 19.2 9.8 6.2 
Money and quasi money (M2) as % of GDP 48.9 49.0 59.7 58.3 74.6 71.9 
Table I.1 (cont'd)  WT/TPR/S/262/Rev.1 Trade Policy Review 
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 2005 2006 2007 2008 2009a 2010 
Memorandum       
Inward FDI stock (% of GDP) 15.2 18.2 21.1 21.7 26.7 25.6 
Outward FDI stock (% of GDP) 5.3 9.2 13.6 16.1 19.8 18.7 
CPI inflation (%) 6.2 9.3 11.1 12.3 1.6 1.7 
External debt (US$ billion)  41.0 80.6 130.1 135.8 132 138 
External debt as a % of GDP 30.6 49.2 50.4 43.1 48.1 46.2 
 
.. Not available. 
 a Preliminary. 
b Statistical information in 2010 is from  IMF (2011b), Country Report No. 11/112, May. 
c Includes IMF estimates of revenues from other gove rnment entities operating in the oil and gas sector. 
d Taxes on profit of foreign banks. Income taxes on gas companies are included under hydrocarbon revenues. 
e IMF staff estimates. 
f Excludes military wages and salaries. 
g Largely military and internal security expenditures paid by Abu Dhabi but not in the federal accounts. 
h Includes Government's contribution to th e pension fund in 2005 of AED 6,207 million. 
i Includes Government's share in the 2005 priv atization of the telecom company, Etisalat 
j Intra-governmental grants are netted out  in the consolidated fiscal accounts. 
k Consolidated accounts of the Federal Gove rnment, Abu Dhabi, Dubai and Sharjah. 
 
Source: UAE National Bureau of Statistics ;  UAE Central Bank; and IMF (2011b), Country Report No. 11/112, May. 
9. Despite the diversification strategy implemented during the last decade, the UAE economy is 
still dominated to a considerable extent by the oil sector.  The production of crude oil and natural gas 
accounted for some 31.6% of GDP in 2010;  this share increases to over one third of GDP if 
oil-related manufactured production is included.  Manufacturing represented some 9.7% of GDP in 
2010.  Of this share, some 50% is accounted fo r by metal products, machinery and equipment, and 
mining non-metal products;  the rest is evenly di stributed among chemical products, foodstuffs and 
beverages, textiles and garments, and wood and furniture.  There ar e smaller contributions from the 
paper and basic metal industries.  Despite being a ffected by the global crisis, construction continued 
to account for 11.6% of GDP in 2010.  The agricultu re sector (including livestock and fishing, but not 
processed food production) is of small economic im portance in the UAE, accounting for less than 1% 
of total GDP. 
10. Services as a whole accounted for 48% of GDP in 2010;  the most important subsectors were:  
wholesale retail trade and repairing services (concen trated mainly in Dubai), which accounted for 
12.8% of GDP in 2010;  real estate and busin ess services (9.9%);  transport, storage and 
communication (9.1%);  financial services (6.8 %);  and Government (4.6%) (Table I.1). 
11. Although the economic regime is in gene ral open and business-friendly, important 
competition and investment restrictions remain in place, with the exception of business conducted in 
free zones (Chapter II(6) and Chapter III(3)(iv)).  Some of these restrictions include exclusive 
dealership arrangements, the general prohibition on foreign majority ownership of local companies 
and substantial state involvement in selected activ ities.  Also, state involvement in the economy is 
large; a considerable number of UAE compani es, in all sectors, are totally or partly 
government-owned (GREs). 
12. GREs account for an important part of the UAE's economy and have historically been a 
source of growth.  GREs are mainly commercial co rporations, financial ins titutions, and investment 
bodies owned directly by the Governments of Abu Dhab i and Dubai, or by the emirates' rulers.  They 
are organized under the umbrella of major holding companies with activities in various sectors and 
have the implicit guarantee of the government that owns them.  GREs receive government transfers 
and had easy access to capital markets due to the im plicit government guarantee.  The development of United Arab Emirates WT/TPR/S/262/Rev.1 
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GREs has been particularly strong in D ubai, and more recently, in Abu Dhabi.2  G R E s  i n  b o t h  
emirates engage extensively in real estate and infra structure projects and were considerably affected 
by the global financial crisis and the price corr ection in the local property market, which, despite 
government support, forced some Dubai GREs to  reschedule their debts (Chapter IV(5)(i)). 
13. An important development during the period unde r review, which resulted in an improvement 
in the information provided by the UAE, was the establishment in 2009 of the National Bureau of 
Statistics (NBS) of the United Arab Emirates, by Fede ral Law No. 9 of 2009, to satisfy the needs of 
the national development of the country and to orga nize the work of the national statistical system.  
The NBS has an independent budget and reports direc tly to the Cabinet.  The NBS is now the sole 
official statistical source for the State.3 
(3) OUTPUT , PRICES , AND EMPLOYMENT  
14. The UAE's economic performance was very strong over the period 2005-08, achieving an 
annual average growth rate of 5.5%.  Growth was b ased to a large extent on a successful strategy of 
diversification, into services, real estate, and ma nufacture.  Growth of non-hydrocarbon GDP, at an 
annual average rate of 8.2% during the period, was considerably faster than that of hydrocarbon GDP 
(annual average rate of 0.6%).  The high non-hydrocarbon GDP growth was made possible by a 
policy of strong investment, which resulted in massi ve capital formation and by the large inflow of 
foreign labour, which allowed the po licy of diversification to succeed.4  This influx was partly behind 
the rapid development of the non-oil sector, both in manufacturing production and in services, including real estate. 
15. The global financial crisis combined with lo wer oil prices and the price correction in the 
Dubai real estate market brought an end to this period of high growth, and the economy of the UAE 
contracted by 1.6% in 2009.  In the wake of  the financial crisis, the authorities adopted 
countercyclical measures to boost output and prop-up the banking industry (see below).  In particular, 
the authorities supported the banking sector through liquidity injection, the recapitalization of institutions, and deposit guarantees.  The mone y supply expanded rapidly, as did government 
expenditure, with the fiscal deficit rising quickly (see below). 
16. The position of many highly-leveraged govern ment-related entities (GREs) deteriorated 
rapidly (see Chapter IV(5)(i)) as they found themselves with substantial short-te rm obligations amidst 
lower revenues and declining prices of the assets they he ld, particularly real estate.  This forced Dubai 
World (DW), a major Dubai GRE, to seek a debt  standstill in November 2009 (Box IV.2).  The 
Government of the Emirate of Abu Dhabi provided fi nancial support to the Emirate of Dubai, through 
its participation in the Dubai Fi nancial Support Fund (DFSF), estab lished in July 2009 to provide 
financial assistance to GREs of strategic importanc e and by injecting AED 16 billion of capital into 
five large banks based in Abu Dhabi.  The restru cturing of some US$24.9 billion of DW debt was 
agreed by all creditors in late October 2010.   Other Dubai GREs (Dubai Holding Commercial 
Operations Group (DHCOG), Dubai Group (DG) and Dubai International Capital (DIC)), also 
engaged in debt restructur ing negotiations with banks. 
                                                      
2 For an extensive discussion on GREs, see IMF (2011b), Chapter I. 
3 NBS online information.  Viewed at:  www.uaestatistics.gov.ae.  
4 In its May 2011 Article IV Consultation Staff Repor t, the IMF states that the growth of labour and 
capital, rather than total factor productivity, accounts for most non- oil output expansion over the 1981-2000 
period.  It also noted that, in turn , this expansion was possible because of  the UAE's open foreign labour policy, 
which enabled the private sector to recruit expatria te workers at competitive wages.  See IMF (2011a). WT/TPR/S/262/Rev.1 Trade Policy Review 
Page 6 
  
17. The UAE economy started to emerge from the crisis  in 2010, when GDP is estimated to have 
grown by 1.4%, triggered in particular by a recovery of the non-hydrocarbon sector, which expanded 
by 5%.  The IMF estimates that non-hydrocarbon GDP  will grow by some 3.3% in 2011, led by 
strong tourism, logistics, and trade in Dubai; and by  large public investment spending in Abu Dhabi.  
GDP as a whole is projected to expand at the same rate.  However, there are downside risks for future 
growth particularly due to the still-ailing real esta te sector and the short-term refinancing needs of 
GREs. 
18. At the beginning of the period under review (2006-08), inflationary pressures continued to 
mount, reflecting strong domestic demand.  Annual  average Consumer Price Index (CPI) inflation 
reached a peak of 12.3% in 2008, before declin ing sharply in 2009 to 1.6% and 1.7% in 2010, 
reflecting falling domestic demand.  However, due to stronger domestic demand, inflation picked up 
some in 2011, and is estimated by the IMF to have averaged 2.5%. 
19. The employment situation in the UAE is partic ular to the country, with low unemployment 
among the foreign population and higher rates among nationals.  Over the past two decades, the UAE 
applied a policy of attaining grow th through a massive utilization of labour and capital factors.  As a 
result, immigration was encouraged and the populatio n grew rapidly, to some 8.26 million in 2009, of 
whom only about one million are UAE nationals.  Th e workforce totalled 5.28 million in 2009;  the 
private sector employed 58.4% of the workforce and the rest was employed mostly by Government at 
the federal or emirate level, or by GREs.5  While unemployment is low among the foreign 
community, at some 3%, unemployment among nati onals reached 14% in 2009, with a general 
unemployment rate of 4.2%.  To boost empl oyment, especially among nationals, the UAE 
Government has been conducting an "emiratizati on" policy to increase the number of nationals 
employed in private sector activities, partic ularly banking, insurance, and trading. 
(4) MONETARY POLICY AND EXCHANGE RATE REGIME  
20. Monetary policy is formulated and conducted by the Central Bank of the UAE (CBUAE).  
The Central Bank is also responsible for the fo rmulation and implementa tion of banking and credit 
policies, so as to ensure the st ability of the currency and the growth of the national economy of the 
UAE in a balanced manner.6  The CBUAE has authority over the banking and financial sectors, 
except for the financial institutions operating in the Dubai International Financ ial Centre (DIFC).  The 
UAE adopts a fixed exchange rate of the dirham against the U.S. dollar policy, and by law the CBUAE must ensure the free convertibility of the na tional currency into foreign currencies.  Hence, 
the CBUAE has to keep enough reser ves to maintain the currency's pe g to the dollar.  As a result, 
there is no autonomous monetary policy.  The CBUAE also acts as banker of last resort to the Government and the financial sector, and as the Government's financial advisor. 
21. Under Law No. (10) of 1980, the CBUAE may u se a number of instruments to attain its 
monetary objectives.  The fixed peg of the dirham  to the U.S. dollar, however, means that local 
interest rates must be aligned to those of the dolla r across the maturity curve.  As a result, and as 
mentioned above, the effectiveness of monetary polic y instruments at the Central Bank's disposal has 
been reduced.  The main instrument s used by the CBUAE to regulate domestic liquidity are:  (1) the 
                                                      
5 Almost 85% of UAE nationals worked for the federal or emirate governments in 2009.  During the 
financial crisis, jobs were created at the government level to help nationals face the crisis, raising the percentage 
of nationals working for the Government from 80.3% to 84.9%.  Ministry of Economy (2010). 
6 CBU online information.  Viewed at:  http:// www.centralbank.ae/en/index.php?option=com_content 
&view=article&id=68&Itemid=107. United Arab Emirates WT/TPR/S/262/Rev.1 
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minimum reserve requirement;  (2) US$/AED swaps for dirham liquidity7;  (3) advances and overdraft 
facility for banks8;  (4) prudential regulation;  (5) issuance by the CBUAE of certificates of deposit 
and repo facilities on certificates of deposit (CDs);  a nd (6) liquidity support facilities made available 
to commercial banks since the adve nt of the international crisis. 
22. In October 2011, the minimum reserve requi rement was 14% on current, savings, and call 
accounts, and 1% only on time deposits.  These ratios a pply to both deposits in dirhams and in foreign 
currencies.  In addition, banks are required to keep  at the Central Bank 30% of their dirham deposits 
abroad with non-resident banks (including their Head Office and branches in the case of foreign 
banks).  The US$/AED swap facility is availa ble to all banks operating in the UAE under the 
jurisdiction of the CBUAE.  Certificates of deposit (C Ds) are issued by the Central Bank, as a tool for 
liquidity management;  issuance is mainly demand- driven as banks with ex cess liquidity can invest 
their surplus funds in CDs of varying matur ities.  The CDs programme, launched in 1985, was 
amended in 1994 and in 2007:  the New Expande d Central Bank CDs Issuance System became 
effective 28 November 2007.9  A liquidity support facility was set up in September 2008, when banks 
were facing a shortfall in liquidity due to the global financial crisis.10 
23. The CBUAE places a number of prudential requirements on banks.  Its capital adequacy ratio 
requirement is 12% compared with an 8% Basel requ irement.  Banks are also required to maintain a 
ratio of loans and advances to stable resources equal to one.11 
24. Reflecting high nominal GDP growth in 2006- 08, the money supply expanded considerably 
during the period.  This was due to the increase in bank credit to the private sector and to state-owned 
enterprises.  The trend continued in 2009 due to the liquidity injected into the system by the CBUAE 
and the recapitalizing of banks in the middle of the global financial crisis, although at a lower rate 
than before (less than 10% in 2009 down from 19% in 2008).  This slowdown in broad money growth 
amid increased liquidity available was due to w eak demand for credit by firms and households in 
addition to the cautious attitude of banks toward s lending.  Any excess liquidity by the banks was 
invested in certificates of deposit with the Central Bank.  The three-month inter-bank rate for the AED 
(EIBOR) declined from a peak of 4.7% in October 2008 to 2.1% in January 2011 and to 1.5% in mid-
October 2011. 
                                                      
7 US$/AED swaps are a way of injecting dirham liquidity.  Swap arrangements involve a simultaneous 
sale and forward purchase of U.S. dollars against the purchase/forward sale of equivalent  dirham amounts for a 
fixed term at specified forward rates.  Swap terms may be of one week, one month, 3 months, 6 months, 9 months, or 12 months. 
8 Under this mechanism, the Central Bank can provide banks with loans and advances for up to 7 days 
without collateral, and for up to 6 months against collateral.  The CBU provides an overdraft facility to commercial banks that allows them to utilize their required reserves free of charge for up to seven days. 
9 The system is an auction-based issuance for CDs denominated in UAE dirhams, U.S. dollars, and 
euros.  CDs of maturities ranging from 1 week to 12 m onths are issued daily, while CDs of maturities ranging 
between 2 and 5 years are issued monthly.  Under the new issuance system, banks may repurchase (repo) their 
CDs from the CBUAE or from other ba nks to access liquidity.  The repo term offered by the Central Bank is of 
up to 3 months as long as the balance life of the CD used as collateral goes beyond the repo term.  Banks may 
also seek U.S. dollar funding by using their holdings of CDs as collateral.  Banks may redeem CDs with the 
CBUAE at any point during the lif e of the CD as long as the CD  is free from any encumbrance. 
10 Under this facility, a bank may submit its portfolio of securities to the CBUAE for evaluation.  The 
CBUAE will accept as eligible the secur ities that comply with its guidelines, and assign a credit line to the bank 
based on the adjusted value of the eligible securities.  The bank may then access CBUAE funds on a weekly 
rollover basis for as long as it needs the facility. 
11 The numerator of this ratio comprises loans and advances (including interbank placements with a 
remaining maturity of more than three months), while the denominator comprises free capital and reserves, interbank deposits received with a rema ining maturity of more than six months, and 85% of customer deposits. WT/TPR/S/262/Rev.1 Trade Policy Review 
Page 8 
  
25. The UAE has a fixed exchange rate regime, wh ereby the domestic currency, the UAE dirham 
(AED) is pegged (since November 1997) to the U.S. do llar at an exchange rate of AED 3.6725/US$1.  
The UAE's exchange system is free of restricti ons on payments and transfers for international 
transactions, except for certain restrictions under terrorist financing provisi ons, taken in accordance 
with UN resolutions.  The UAE accepted the oblig ations under Article VIII of the IMF Statutes on 
13 February 1974. 
26. According to IMF estimates, the AED exchange rate is broadly in line with fundamentals, 
being overvalued by just 1% at the end of 20 10.  Also according to IMF calculations, following a 
period of strong real appreciation between 2005 and 2008 , the trade-weighted r eal effective exchange 
rate (REER) depreciated by 10.2% from its peak in March 2009 until end 2010.12  The UAE withdrew 
in May 2009 from plans to create a monetary union at Gulf Cooperation Council (GCC) level. 
(5) FISCAL POLICY  
27. Despite large revenues from the oil industry, fi scal accounts in the UAE have deteriorated in 
the aftermath of the global financial crisis.  From a surplus equivalent to 16.5% of GDP in 2008, the 
fiscal accounts deteriorated to post a deficit e quivalent to 12.6% of GDP in 2009, with the non-
hydrocarbon deficit reaching 44.7% of GDP.  Th e deficit shrank to 1.3% of GDP in 2010 as a 
consequence of higher hydrocarbon revenues and a return to a more pro-cyclical policy stance.  The non-hydrocarbon primary fiscal deficit (excluding invest ment income) contracted sharply, largely due 
to slower project implementation in Abu Dhab i, and to lower transfers to Dubai GREs. 
28. The UAE posts a structural non-hydrocarbon fiscal deficit varies between a fifth and a third of 
GDP (Table I.1).  The deficit is particularly larg e in the case of Abu Dhabi, where it reached almost 
80% of GDP in 2009.  The authorities indicated that steps have been taken to reduce this deficit by 
containing the growth of spending, and reducing producer subsidies a nd transfers.  However, stronger 
efforts might be needed to achieve  fiscal consolidation (see below). 
29. In the context of this Review, the authoriti es highlighted that volatile oil prices make it 
difficult for the UAE to maintain stable fiscal indicat ors.  They also indicated that the general policy 
to achieve fiscal consolidation is to reduce gene ral expenditure and improve tax collection, while 
promoting economic growth.  Among the elements be ing considered is the introduction of a value-
added tax and income tax on companies, as well as the reduction/cancellation of some duty exemptions granted to companies and government agencies. 
30. As the IMF notes, the active use of countercyclical fiscal policy could mitigate boom-bust 
cycles in the UAE economy, but the authorities have resorted to this type of policy stance only in 
extreme cases, like the strong 2009 recession.  The IM F's assessment is that this contributed to the 
overheating of the economy prior to the crisis, while in 2010, the contractionary fiscal stance slowed 
the recovery.
13  The IMF recommends delinking government  and GRE spending from the volatility of 
oil prices and aiming fiscal policy, particularly Abu Dhabi's where most hydrocarbon production takes 
place, at ensuring long-term sustaina bility and intergenerational equity.14  It also recommends that 
Dubai undertake fiscal consolidation to lower its debt-to-GDP ratio. 
                                                      
12 See IMF (2011a). 
13 In a fixed exchange rate regime like the UAE's, fiscal policy is the main effective macroeconomic 
policy since monetary policy, as discussed above, is not effective in affecting output. 
14 IMF (2011b), Chapter III. United Arab Emirates WT/TPR/S/262/Rev.1 
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31. The IMF also considers that, given the federal structure, closer fiscal coordination among the 
emirates is key to promoting both short-term dema nd management and medium-term sustainability.  
This coordination should seek to avoid procyclicality  and reduce fiscal risks.  A Fiscal Coordination 
Council was created to this end. 
32. The authorities are aware of the importance of achieving fiscal consolidation and are 
preparing to introduce a VAT in the context of the GCC, which is expected to enhance revenue and 
facilitate such consolidation. 
33. The UAE's total debt increased substantially dur ing the financial crisis, mainly due to a 
substantially higher fiscal deficit and to the refina ncing needs of Dubai World and other GREs.  Total 
UAE gross public debt is estimated to have reach ed US$236 billion, or 78% of GDP at end 2010.  Of 
this total, Abu Dhabi's debt is US$104 billion ( 54.2% of Abu Dhabi's GDP), Dubai's US$113 billion 
(102.6% of Dubai's and the Nort hern Emirates GDP), US$5.2 is debt of other emirates, and 
US$19.1 billion is federal government debt (6.3% of GDP).  In December 2010, the debt of Dubai's 
GREs was US$76 billion, while that of Abu Dhabi was US$92.4 billion.  Debt accounting for almost 
20% of GDP matures in 2011 and 2012 and is likely to be refinanced, pushing the concentration of 
maturities to the 2014-15 period. 
(6) BALANCE OF PAYMENTS  
34. The UAE runs a structural trade balance surp lus, which peaked in 2008, at US$62.9 billion, 
declined in 2009 as a consequence of a considerab le drop in oil exports, despite a reduction in 
imports, and increased again in 2010, to US$50.9  billion, mainly due to  an increase in non-
hydrocarbon exports and in re-expor ts (Table I.2).  The services balance showed a deficit throughout 
the period under review;  posting a deficit of US $29.9 billion in 2010.  The transfers balance was 
negative by US$11.3 billion.  However, due to the strong trade surplus, the current account balance 
has traditionally showed a surplus in recent years.  This surplus peaked at US$35.2 billion or 15.3% 
of GDP in 2006, before starting to decline, to r each a low of US$7.8 billion (2.9% of GDP) in 2009, 
in the middle of the financial crisis.  The surp lus grew again in 2010, to reach US$11.2 billion, 
(3.8% of GDP). 
Table I.2 
Balance of payments, 2005-10 
(US$ billion) 
2005 2006 2007 2008 2009 2010 
Current account balance 24.4 35.2 31.6 21.6 7.8 11.2 
(% of GDP) 13.5 15.8 12.2 6.9 2.9 3.8 
Trade balance (f.o.b.) 42.8 56.4 58.9 62.9 42.1 50.9 
Trade balance (c.i.f.) 32.6 44.6 43.0 38.9 21.7 28.9 
Exports and re-exports 117.3 142.5 175.5 239.2 191.8 212.3 
Total exports of hydrocarbons 55.1 70.1 24.5 102.1 67.9 75.1 
    Crude oil exports 43.5 58.1 4.9 85.4 54.1 60.1 
    Petroleum products exports 5.8 4.9 8.1 6.0 5.4 6.1 
    Gas exports 5.8 7.1 11.5 10.6 8.3 8.8 
Non-hydrocarbon exports 22.4 26.4 88.8 43.0 44.0 51.0 
    Free zone exports 17.4 20.5 62.3 26.5 26.2 26.8 
    Exports from Customs territory 5.0 5.9 26.5 16.4 17.8 24.2 
    Re-exportsa 39.8 46.0 62.3 94.2 80.0 86.2 
Imports -74.5 -86.1 -116.6 -176.3 -149.7 -161.4 
   Imports to customs territory -67.4 -77.1 -107.8 -140.0 -121.8 -129.4 
    Imports to free zones -17.2 -20.8 -24.7 -60.4 -48.3 -54.0 
Table I.2 (cont'd) WT/TPR/S/262/Rev.1 Trade Policy Review 
Page 10 
  
2005 2006 2007 2008 2009 2010 
Investment income, net 2.9 4.7 5.9 3.1 3.2 1.6 
Services, net -14.6 -17.8 -23.9 -33.8 -27.3 -29.9 
    Credits 4.8 6.8 8.0 9.6 10.2 11.7 
    Debits -19.4 -24.9 -34.0 -43.4 -37.6 -39.9 
Transfers, net -6.7 -8.2 -9.3 -10.6 -10.2 -11.3 
    Private -6.2 -7.6 -8.7 -10.0 -9.5 -10.6 
    Officialb -0.5 -0.6 -0.6 -0.6 -0.7 -0.7 
Financial account balance -14.7 -16.1 11.3 -55.3 -9.7 2.0 
Private capital 15.0 23.9 59.2 -25.8 -4.2 6.3 
Direct investment, net 7.1 1.9 -0.4 -2.1 1.3 1.9 
Portfolio securities, net 6.1 1.2 1.4 2.2 2.5 1.0 
Commercial banks -3.4 9.7 48.6 -12.2 -9.9 -1.3 
Private non-banks and other 5.1 11.1 9.6 -13.7 1.9 4.6 
Official capital -29.7 -39.9 -47.9 -29.5 -5.4 -4.2 
Errors and omissions -7.1 -12.6 7.0 -13.1 -4.3 -5.9 
Overall balance 2.6 6.5 49.9 -46.8 -6.1 7.3 
Change in Central Bank net foreign assetsc -2.6 -6.5 -49.9 46.9 6.1 -7.3 
Memorandum items: 
Overall balance (% of GDP) 1.4 3.0 19.3 -14.9 -2.2 2.4 
Central Bank gross reserves (IMF information) 21.3 28.0 77.9 30.9 24.7 32.0 
 
a Not formally compiled;  estimated at  40% to 70% of UAE emirates imports.  
b Includes changes in government external assets.  
c A minus sign equals increase.   
 
Source: Central Bank of the United Arab Emirates. 
35. Flows of private capital, which had been incr easing rapidly until 2007, declined considerably 
in 2008 and were negative in 2009, reflecting the extent of the global financial crisis and its effects on 
the UAE market.  There was a sizeable reducti on of foreign exchange reserves between 2007 and 
2009, from US$77.9 billion to US$24.7 billion, befo re recovering in 2010 (to US$32 billion), when 
there was a net inflow of private capital again.  The level of reserves continued to rise in 2011, due to 
the improvement in the current account of the balance of payments. 
36. The UAE's external debt increased sharply during the period under review, partly as a 
consequence of the increased levera ge of GREs;  the situation was exacerbated by the effects of the 
financial crisis.  The external debt increased from US$41 billion (30.6% of GDP) in 2005 to an 
estimated US$138 billion (46.2% of GDP) in 2010. 
(7) DEVELOPMENTS IN TRADE15 
37. The UAE is an open economy, as witnessed by its hi gh ratio of imports plus exports of goods 
and services to GDP, which was almost 143% in 2010. 
(i) Composition of trade in goods 
38. Exports of goods increased rapidly between 2006 and 2008, when they peaked at 
US$210 billion, according to COMTRADE data;  in 20 09, exports declined by some 17% reflecting 
lower oil prices and the global economic crisis (T able AI.1).  Imports also peaked in 2008 
(US$175.5 billion) and declined in 2009;  however th ey started to recover in 2010 as growth picked 
up. 
                                                      
15 The information in this section is based on  the United Nations' COMT RADE database, and may 
differ from the figures provided in the balance-of-payments section. United Arab Emirates WT/TPR/S/262/Rev.1 
 Page 11 
 
 
39. The main export product continues to be crude o il, which accounted for about a third of total 
exports and re-exports in 2010, while fuels as a whole accounted for over 37% of the total.  If 
re-exports are excluded, fuels accounted for half of  total exports, while crude oil represented 44.3% of 
the total.  Including re-exports, exports of manuf actured goods represented some 26.6% of the total, 
the main products being machinery and equipmen t, diamonds, automotive products, and jewellery. 
However, if re-exports are excluded, manufactured products accounted for just 4.7% of total UAE 
exports in 2010.16 
40. It is estimated that nearly two thirds of non-hydrocarbon exports originate in free zones, 
mainly the Dubai Jebel Ali Free Zone Authority (J afza);  the main products exported from free zones 
consist of machinery and appliances, including computers and other consumer electronics.  Non-
hydrocarbon exports from outside the free zones incl ude clothing, tobacco products, and aluminium.  
Re-exports are an important source of revenue, re presenting around one third of total merchandise 
exports (Table AI.1).  This reflects the importan ce of the UAE as a centre for re-exports, mainly to 
India, Iran, and Iraq. 
41. Imports of manufactures account for over half of total imports;  the main single item is 
machinery and equipment, with imports representing almo st a third of the total (Table AI.2).  Imports 
of gold, automotive products, diamonds a nd clothing are next in importance.17 
(ii) Direction of trade 
42. Data presented by COMTRADE do not allow easy identification of the main trading partners, 
as the category "other" is very large, accounting for about one third of the total.  According to the 
Ministry of Foreign Trade, the ten top major non-oi l export destinations in 2010 were:  India (33.7% 
of the total);  Switzerland (16.2%);  Saudi Arabia  (4.5%);  Brazil (3.5%);  Iran (3.3%);  Norway 
(3.2%);  Pakistan (2.5%);  Oman (2.2%);  Qata r (2.2%);  and Kuwait (2.0%).  Including re-exports, 
the main destinations were:  India;  Iran;  Iraq;  Switzerland;  Saudi Arabia;  Afghanistan;  Bahrain;  
Kuwait;  Qatar;  Hong Kong, China;  and Belgium. 
43. The main import sources in 2010 according to the UAE Ministry of Foreign Trade statistics 
(includes only non-oil imports) were:  India (17.1%);   China (10.3%);  the United States (8.5%);  
Germany (6.1%);  Japan (5.9%);  the United Ki ngdom (3.6%);  Italy (3.1%);  France (2.6%);  
South Korea (2.5%);  and Saudi Arabia (2.5%). 
(iii) Trade in services 
44. The services trade deficit doubled between 2005 and 2010, when it reached US$29.9 billion.  
The UAE is an important exporter of tourism, and air and maritime transport services.  It is a net 
importer of financial (including insurance) , construction, and professional services. 
                                                      
16 According to information provided by the UAE authorities, the ten main export categories by 
HS Code in 2010 were:  gold (HS 71.08);  light vessels (HS 89.05);  waste and scrap of precious metals 
(HS 71.12);  cane or beet sugar in solid form (HS 17.01);  polymers of ethylene (HS 39.01);  petroleum oils an oils obtained from other bituminous metals (HS 27.10);  other plates, film, sheets, foil and strip of plastics 
(HS 72.04);  polyacetals (H S 39.07);  and articles of jewellery (HS 71.13). 
17 According to information provided by the UAE authorities, the ten main import categories by 
HS code in 2010 were:  gold (HS 71.08);  diamonds (HS 71.02);  motor cars (HS 87.03);  articles of jewellery 
(HS 71.13);  telephone sets (HS 85.17);  parts of aircraft (HS 88.03);  aircraft (HS 88.02);  turbo jets and gas 
turbines (HS 84.11);  parts and accesso ries of tractors (HS 87.08);  and pe troleum oils and o ils obtained from 
bituminous metals (HS 27.10). WT/TPR/S/262/Rev.1 Trade Policy Review 
Page 12 
  
(8) DEVELOPMENTS IN FOREIGN INVESTMENT  
45. Foreign direct investment (FDI) inflows increased rapidly during the period under review;  
the stock of FDI more than tripled between 2005 and 2009, when it reached US$52.9 billion, representing some 21% of GDP (Table I.3).  FDI inflows slowed down somewhat due to the global 
crisis, particularly in 2008, but accelerated again in 2009. 
46. The Government has launched efforts to im prove the collection of statistics on FDI, 
particularly by source.  The leading sectors attracting FDI are financial services, construction and building, real estate, and wholesale and retail trade. 
Table I.3  
Foreign direct investment st ock by economic sector, 2005-09 
(AED billion and %) 
 
2005 2006 2007 2008 2009 % of 
total 
2009 
Total (AED billion) 61.9 74.6 128.1 154.6 195.7 100.0 
Total (US$ million) 16.7 20.2 34.6 41.8 52.9  
Agriculture and fisheries 0.2 0.1 0.2 0.3 0.3 0.2 
Extraction industries 1.6 1.9 4.0 4.8 5.1 2.6 
Manufacturing industries 6.2 7.2 10.5 12.7 18.9 9.7 
Electricity and water 1.3 1.6 6.2 7.4 4.1 2.1 
Construction and building 15.0 16.4 24.7 29.8 42.9 21.9 
Wholesale and retail trade 8.9 10.3 13.2 16.0 26.9 13.7 
Hotels and restaurants 1.3 1.3 1.3 1.6 3.5 1.8 
Transportation and communications 2.8 5.4 5.3 6.4 14.3 7.3 
Financial institutions 16.0 17.1 26.5 32.0 44.9 22.9 
Real estate 8.2 12.8 35.7 43.1 33.6 17.2 
Other 0.4 0.5 0.4 0.5 1.3 0.7 
 
Source:  Ministry of Economy (2010), Annual Economic and Social Report 2009 . 
47. The UAE is also an important investor abroad , mainly the emirate of Abu Dhabi through the 
Abu Dhabi Investment Authority (ADIA), one of th e world's largest government  financial investment 
vehicles.  ADIA is responsible for investing all of the Abu Dhabi Government's oil revenues and 
assets worldwide.  The total amount of its investments is undisclosed.  Since 2005, ADIA has been 
investing in equities, and investment-grade credit within fixed income.  In 2007, ADIA started investing in infrastructure 
(9) 
OUTLOOK  
48. In 2011, the UAE economy was continuing to r ecover from the effects of the global financial 
crisis.  The IMF is forecasting GDP growth of 3.3% in 2011, with similar rates for both the 
hydrocarbon and non-hydrocarbon sectors.  Inflatio n is expected to accelerate to 4.5% as domestic 
demand recovers.  The increase in hydrocarbons reve nue and expenditure moderation are expected to 
result in an improvement in the fiscal accounts, lead ing to an overall surplus of 6.5%, more in line 
with what was common before the global crisis.  Both exports and imports of goods are expected to 
increase, and the surplus in the current account of the balance of payments is estimated to be in the 
10% range. United Arab Emirates WT/TPR/S/262/Rev.1 
 Page 13 
 
 
49. The outlook for the UAE economy hinges strongly on the evolution of hydrocarbons markets 
and on the capacity to refinance GRE's debt.  Also, it will be important for the Government to continue diversifying the economy away from oil, and to apply countercyclical policies when required.  The real estate overhang is expected  to continue to be a factor depressing growth 
perspectives.