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publication October 7, 2021

GCC Economic Update — October 2021



The economy will see a return to moderate growth in 2021, with the ease in restrictions helped by a rapid vaccination rollout. Fiscal and external deficits are expected to narrow, reversing their expansion observed in 2020. Debt to-GDP-ratio will remain above 130 percent during the forecast period, highlighting the priority of fiscal adjustment to put debt on a downward path. Downside risks arise from prolonged pandemic effects, oil price volatility and inadequate fiscal adjustment to contain the twin deficits which could lower growth outcomes and risk social tensions.

 Key conditions and challenges

 Bahrain entered the COVID-19 crisis with weak macroeconomic conditions. Even before, the fiscal and external deficits deteriorated following the 2014 oil price shock, and remained weak, notwithstanding progress under the 2018 Fiscal Balance Program (FBP), whose implementation was halted due to the pandemic and related oil price shock. The substantial pandemic-related crisis package of US$11.3 billion introduced in March 2020, and an additional US$1.3 billion stimulus package in June 2021 to support the sectors hardest-hit by COVID-19, have further limited the country’s fiscal space, and aggravated already weak growth dynamics. Meanwhile, more is needed to facilitate private investment and trigger more private business development, strengthening the education system and support female labor force participation.

Recent developments

Preliminary official data reveals that the economy contracted by 2.1 percent year on year (y/y) in the first quarter 2021 (Q1-21), compared to the 5 percent contraction in 2020. The rebound is driven by the recovery of the oil sector, which grew by 2 percent (y/y) in Q1-21. This recovery outperformed the slowdown in the non-oil sector, down by 3 percent in Q1-21, as containment measures and travel restrictions hit hard services and tourism sectors where Bahrain has heavily invested.

According to the most recent data from the Labor Market Regulatory Authority (LMRA), total employment in Q1-21 fell with respect to the 2020, driven by lower foreign employment. The number of new work visas decreased by 10.6 percent in Q1-21 (y/y), and visa renewals fell by 27.9 percent. The number of foreign workers reached 531,447 in Q1-21, declining by 9.4 percent (y/y), and accounting for 77.6 percent of the country's total employment. Bahraini employment reached 153,757 during the same period in 2021. However, median monthly wages for Bahrainis reached BHD 556, a 3.2 percent increase (y/y).


The economic outlook hangs on oil market prospects, the global path of the pandemic, and the government’s commitment to the reforms plan. The hydrocarbon GDP is estimated to recover reaching almost 1.0 percent growth in 2021 and to remain stable in the forecast period with the unwinding OPEC+ deal by 2022 and further expanding the gas output from new fields. Non-hydrocarbon GDP is forecast to accelerate to almost 4 percent in 2021 as rapid vaccination deployment boosts activity in the services sectors, before bouncing back to an average of 3.5 percent in 2022-23 with the uncertainties on the path of delta variants and the need for fiscal consolidations. The swift rollout of 5G services last January coupled with a robust digital infrastructure in e-commerce and ICT sectors are likely to be important drivers of growth going forward. Inflation is estimated to increase to 1.5 percent in 2021 as aggregate demand improves and pandemic-related subsidies are phased out.



Kuwait’s economy contracted sharply in 2020 and the fiscal deficit reached an all-time high due to the fallout from the pandemic and OPEC+ oil production cuts. The economic recovery is expected to gather pace in 2021 and continue into the medium term as pandemic related restrictions are eased, and the combined effects of higher oil production and rising oil prices create scope for looser fiscal policy. However, emerging coronavirus variants and renewed downward pressure on oil prices are key downside risks.

Key conditions and challenges

Kuwait’s long-term challenges relate to the economy’s heavy dependence on oil and domestic consumption, and slow progress in the implementation of diversification plans. Hydrocarbons account for over 85 percent of fiscal revenue and 50 percent of GDP, a key issue in the New Kuwait 2035 Development Plan. The third development plan 2020-2025 was launched to meet these goals but implementation has been slow. Large financial assets underpin Kuwait’s economic resilience, but these assets alone cannot substitute for the fiscal and structural reforms that would offset the risks of lower oil prices, low oil demand in the future, and rising marginal cost of production. Such reforms include non-oil revenue mobilization, enhancing human capital, and reforming economic governance to invigorate private sector-led development.

Non-oil growth is stalled due to short-term challenges related to the fallout from the coronavirus pandemic, and structural problems such as the lack of a dynamic private sector, compounded by political barriers to structural reform. Kuwaiti authorities still need to balance containing mounting fiscal pressures while supporting citizens and businesses disrupted by the pandemic. Capital spending and development projects have stalled; fiscal outturns show a 27.5 percent reduction in capital spending in FY20/21. Parliamentary pressure to expand ‘Kuwaitization’ (replacing expatriates with Kuwaitis to curb unemployment) is mounting, against the lack of demand by nationals to take on lower-skilled jobs. Friction between the executive and legislative branches has led to frequent cabinet reshuffles and parliamentary opposition to critical fiscal reforms.

Key risks to the outlook relate to the uncertainty over new variants of COVID-19, continued volatility in oil demand and prices and the political deadlock over debt financing. If these risks materialize, Kuwait will face unfavorable macro-financial dynamics. A more rapid rollout of the vaccine programs in Kuwait and the GCC should strengthen domestic recovery, but the persistent challenge of diversification remains.

Recent developments

Early 2021 showed signs of recovery with a rebound of domestic consumption supported by renewed debt payment deferrals, and higher consumer loans. The oil sector picked up in May in line with OPEC+’s decision to ease production cuts. A spike in covid-19 cases in July 2021 prompted authorities to tighten restrictions allowing only vaccinated individuals to enter malls/restaurants. The case count has since dropped dramatically; the 7-day moving average for daily new cases was 166 in September, down from 1,827 in July. The vaccination drive has made significant progress; more than 70 percent of the population has received at least one dose. Real GDP in 2020 had contracted by 8.9 percent due to the fallout from the coronavirus pandemic in both oil and nonoil sectors but is expected to rebound in 2022 to 5.3 percent. Oil production fell from 2.7 mn b/d in 2019 to 2.4 mn b/d in 2020. Inflation increased from 1.1 in 2019 to 2.1 in 2020 mainly due to higher food prices.

The fiscal deficit widened from 9.5 percent of GDP in FY19/20 to 33.2 percent in FY20/21, and thus it is more urgent to address this widening gap through fiscal consolidation and debt management. (the fiscal year begins in April and figures exclude investment income and transfers to the Future Generations Fund (FGF)). The parliament approved an expansionary budget for FY21/22 with a narrower deficit (24.5 percent of GDP) as oil revenues are expected to increase, but financing the deficit will remain a challenge without the approval of the new debt law that seeks to raise the borrowing limit. In tandem with severely depressed global oil prices and export volumes as the pandemic hit international trade and supply chains, the current account shrunk by 3.5 percent of GDP in 2020. The drop in exports was partially mitigated by lower imports, outbound tourism and remittances. However, trade is recovering in 2021 with total trade increasing by 20 percent q/q in Q12021 and oil exports increased by 34 percent q/q mainly due to higher oil prices.

The labor market in Kuwait is highly segmented. According to the 2016-17 Labor Force Survey, nine out of ten employed Kuwaitis work in the public sector, and thus were insulated from the pandemic-related restrictions on economic activity. In addition, labor force participation rate is 73.8 percent on average but also differs substantially by nationality: 39.5 percent of Kuwaitis participate in the labor market, against 82.2 percent of non-Kuwaitis. Heterogeneity also exists across genders (female unemployment is 5.8 percent versus 0.9 percent among men) and age (unemployment rate in the 15-24 years old group is 15.4 percent, versus a 2.2 percent at the national level).


OPEC production cuts are due to remain in place but are set to taper by April 2022. Rising oil production, and higher oil prices combined with the rapid rollout of vaccines will support a rapid recovery in 2021. As COVID-related restrictions are further eased consumer spending is expected to surge, mainly due to a low base effect. Over the medium term, real GDP will expand (averaging 4.2 percent for 2022-23) thanks to stronger oil exports, public spending and credit growth. Inflation is anticipated to gain momentum as economic activity recovers and higher global food and oil prices raise import costs.

In the medium term, a recovery in oil receipts will support incremental improvements in the fiscal position, but it will remain in deficit. Introducing the VAT in line with its GCC peers will enable Kuwait to diversify fiscal revenues. The trajectory of government debt is subject to the passing of the debt law which would raise the debt ceiling and increase maximum maturity. The Kuwait Investment Authority’s assets (estimated at US$690 billion) will continue to act as a fiscal backstop. There is critical need for a comprehensive sovereign asset and liability management capability, since assets will be run down more quickly even if debt does not increase, in the absence of fiscal reforms. As oil export earnings recover in the medium term, underpinned by improvements in global demand conditions, and as concerns over the pandemic wane, the current account balance will continue to expand. A downside risk to this is economic recovery in China, which constitutes 25 percent of Kuwait’s exports.



The economy is expected to recover gradually after a difficult 2020. Oil and non-oil growth are projected to rebound as oil production increases and widespread vaccine distribution boosts domestic activity. Fiscal and external deficits are projected to swing into surplus driven by the oil market recovery and the fiscal adjustment, putting the debt on a downward path. Key risks arise from oil price down cycles, protracted economic scarring from a prolonged pandemic and potential social pressures.

Key conditions and challenges

Oman faced significant economic disruption from the twin shocks of COVID-19 and oil price collapse, amplifying fiscal and external vulnerabilities. Despite past efforts to expand non-hydrocarbon revenue, public spending remained heavily susceptible to oil price volatility, with hydrocarbon sector accounting for over 41 percent of GDP (2019). Persistent large fiscal and current account deficits have resulted in further debt build up, a series of credit rating downgrades, and sizable financing needs. Structural vulnerabilities arise also from the dominant role of the state in the economy, heavy reliance on hydrocarbon revenue, unviable private sector, and low competitiveness, among other.

Recognizing the severity of the crisis, the government announced the Medium-Term Fiscal Balance Plan (MTFP) 2020-24 at end-2020 with several fiscal adjustment reforms aiming to boost non-hydrocarbon revenues, rationalize expenditures and put public debt on sustainable path. However, the success of these reforms ultimately depends on political will and public support to implement them. For example, the increase of electricity subsidies introduced last August will delay the previously announced subsidy reform under the MTFP, making the goal of austerity measures very challenging. Key challenge is to translate the government reforms plan into concrete and credible actions to ensure inclusive growth. 

Recent developments

Oman’s economy is gradually emerging from last year contraction as COVID-19 pandemic battered key sectors such as energy, tourism, and manufacturing. While no official data are available yet on the real economy in 2021, preliminary nominal data indicate that Oman’s nominal GDP contracted by 2.5 percent in Q1-2021 (y/y), mainly due to the negative performance of the oil sector which contracted by 20.6 percent (y/y) capped by OPEC+ commitment. Non-hydrocarbon output increased by 5.7 percent driven by swift policy response to the pandemic. Inflation switched from last year negative territory and picked up to an average of 0.2 percent (y/y) in the first half 2021 (H1-2021) due to the introduction of the VAT last April and partial rebounding in domestic demand.

Latest official data from the National Centre for Statistics and Information shows that the unemployment rate in Oman was 3.2 percent in July 2021, down from 3.9 percent in June 2021. However, unemployment among the young population (aged 15 to 24) was significantly higher, reaching 19.6 percent, and among women whose unemployment rate was 10.1 percent. The gender gap in unemployment was especially large among the 25 to 29 years old, where female unemployment rate (27.0 percent) was more than ten times the male rate (2.1 percent). Between July of 2020 and 2021, the number of Omanis employed in the private sector remained virtually constant. In contrast, the number of expatriates working in the private sector decreased by 10 percent in the first 7M-21 (y/y), driven by reduction in the number of workers in the manufacturing and construction services.


The economy is forecast to gradually rebound driven by higher oil prices and development of the hydrocarbon sector. The oil sector will remain the driving force of the economy, which is projected to grow by 3.5 percent in 2021 and accelerate to 6 percent by 2023, driven by higher oil output. The non-oil economy is forecast to post a modest recovery of 1.8 percent in 2021 as the fast-spreading delta variant continues to cause intermittent lockdown, before picking up to an average of 2.5 by 2022-23 supported by lifting the restrictions and the resurgence in tourism. Inflation is projected to pick up to 3 percent in 2021, owing to the recovery of domestic demand and introduction of VAT, but then to decline as the VAT-driven impact on inflation dissipates.

Oil recovery and export diversification are projected to narrow the current account deficit to 5 percent of GDP in 2021, reversing the nearly 14 percent of GDP deficit observed in 2020. The current account balance will significantly improve in 2021-23 driven by the diversification efforts, but to remain in negative territory given large import inputs. Following a US$1.7 billion decline in 2020, gross foreign reserves are estimated to remain stable at US$15 billion (over 5 months of imports) in 2021 and beyond supported by more favorable terms of trade. Downside risks stem from the emergence of COVID-19 variants and renewed lockdown measures which could aggravate economic scarring and impede reforms. Oil price volatility and insufficient fiscal adjustment could worsen the twin deficits and increase gross financing needs. Fiscal consolidation could also give rise to social tensions, thus undermining the reform drive. On the upside, a further rise in oil prices accompanied with a successful implementation of the reforms would improve the outlook.



Strict COVID-19 restrictions, a strong vaccination campaign and the lifting of the diplomatic riff with neighbors, places Qatar on a clear recovery path. Resilient global demand for gas as a transition fuel, significant expansion of North Field production, extensive business environment reforms, and a tourism sector geared for the December 2022 World Cup strengthen the country’s outlook.

Key conditions and challenges

Key structural challenges that face Qatar are the high and persistent dependence on hydrocarbons, which are inherently volatile, and the need to bolster competitiveness in the non-oil economy. Fortunately, the three-year diplomatic rift between Qatar and four Arab states (Saudi Arabia, the UAE, Bahrain and Egypt) that had resulted in an embargo against Qatar for three years has recently been resolved, which should further boost short- and medium-term growth prospects.

Qatar is the world’s third-largest gas exporter and vies with Australia as the largest exporter of Liquified Natural Gas (LNG). The dominance of natural gas exports sets the country apart from other GCC nations, and the sharp recovery in oil prices during 2021 has also reverberated through to LNG markets, especially oil-linked LNG contracts, which has been stronger than initially expected.

Departing from the twelve-year self-imposed moratorium on further development of the North Field in the first quarter of 2017, hydrocarbon production will remain a growing component of the Qatari economy in coming years. Qatar is also expanding LNG investments in the maritime and onshore North Field which will total around US$29 billion and lift production capacity to 126 million tons per annum (mtpa) by 2027, up from the current production rate of 77 million mtpa.

To the extent that LNG is viewed less as a brown intermediate feed stock and more as a complement to a renewable hydrogen-energy based future economy, Qatar is likely to export hydrocarbons for a longer period than other MENA hydrocarbon exporters focused on oil.

In addition to LNG investments, there have been years of efforts to bolster competitiveness. Recently, these included: the abolishment of the Kafala sponsorship system which will help facilitate labor mobility and raise productivity; a new Public-Private Partnerships law which should improve FDI attractiveness; the recognition of real estate ownership by non-Qataris, moving towards a longer-term expatriate residency model including access to healthcare, education, and a level playing field with citizens in some commercial activities. A non-discriminatory minimum wage has also come into force, applying to all workers, of all nationalities, in all sectors, including domestic workers. Qatar is the first country in the region to introduce a non-discriminatory minimum wage.

Recent developments

Early indicators suggest a timid economic recovery. Qatar’s economy is estimated to have contracted by 3.7 percent in 2020 due to the lockdowns following the pandemic and the historic fall in oil prices in the second quarter of that year. Nonetheless, Purchasing Manager’s Index (PMI) readings in 2021 have remained above 50, indicating expansion, and they have gathered momentum in June (54.6) and July (55.9). The COVID-19 pandemic in Qatar was on a path of low and stable new cases and deaths after an initial spike in 2020. A brief uptick in cases in January 2021 has not turned into a new trend. The high vaccination rate (98 doses per 100 people) has allowed the authorities to gradually unwind restrictions. This has had a palpable effect on activity. Mobility as measured via Google data, has returned to pre-pandemic levels although there was a short-lived dip in April and May. Retail and recreation, transit station and workplace mobility, have once again converged to average pre-pandemic levels which broadly remained intact for residential activity during the Covid-19 restrictions.

Qatar also unveiled a more than 60 percent expansion of LNG production over the next several years, and secured supply deals with Bangladesh and Pakistan. This is a clear sign that the energy sector will remain a driver of economic activity in post-pandemic Qatar.

The fiscal deficit in 2021 is estimated at 0.9 percent of GDP, an improvement from the deficit of 3.6 percent in the previous year, following the recovery in hydrocarbon prices, from where the bulk of government revenues are derived. Offsetting expenditures to mitigate the economic effects of COVID-19 amongst hardest hit sectors (travel, tourism and real estate) are expected to continue in the coming quarters. Consumer price deflation which was apparent since the outbreak of the pandemic reversed in the second quarter of 2021 with the annualized rate of inflation reaching 3.1 percent in July. The introduction of a VAT, which was postponed due to the pandemic, is likely to take place later this year.


Real GDP growth for 2021 is expected to be 3 percent, with the same rate of growth for both oil and non-oil GDP, driven by domestic and foreign demand given a successful vaccination roll out and with the end of the diplomatic rift. Strengthening energy prices and final preparations for the FIFA World Cup 2022, fortuitously timed for December, as well as expected bumper tourist receipts from what could be the world’s first post-Covid mass audience sporting event, should lead to 4.8 percent growth in 2022, with non-oil GDP expected to grow 5.9 percent and oil GDP remaining at 3 percent. Continuation of strong oil prices (at US$65 pb) and with expanded North Field production beginning to kick-in in 2023 should maintain real GDP growth near 5 percent in 2023 after the World Cup.

The narrowing of the fiscal deficit in 2021 will be mostly due to the recovery in hydrocarbon prices and a general easing of fiscal mitigation as the pandemic unwinds. The potential introduction of a VAT in the current year is likely to mostly impact revenue in 2022. Like other macroeconomic indicators, the current account in Qatar is largely a function of energy-related commodity prices and export volumes. With a strong improvement in energy prices, the current account will likely return to surplus (3.1 percent of GDP in 2021) and should be further bolstered by World Cup tourist receipts in 2022.

The economic rebound in 2021 and beyond depends on the control of the COVID-19 pandemic. Nonetheless, even if there are renewed bouts of Covid-19 globally and an intensification of “break-through” contagion among the vaccinated, the Tokyo Olympics have shown that major sporting events can be carried out despite the pandemic. Doha, however, has spent much more ahead of these singular events than Tokyo. The resolution of the diplomatic rift also revives the prospect of further GCC integration and regional crisis burden-sharing.




The Saudi Arabian economy is on a recovery path as the spread of the pandemic is kept under control and the vaccination rollout is making significant progress. Improvement of global conditions and spillovers in the oil market have strengthened medium-term fiscal and external outlook.

Key conditions and challenges

The Saudi Arabian economy is dominated by oil, and a long-term diversification plan (Vision 2030), which started implementation in 2016, promotes structural reforms targeting strong, sustained, inclusive, greener, and service-led growth. The economy fell into a deep recession in 2020 in the aftermath of the twin shocks of COVID-19 and lower oil prices, creating large shortfalls in fiscal and external positions. While the oil sector impact of COVID-19 has accelerated the urgency to delink the path of the economy from the oil sector, the pandemic is also likely to change the nature of the services model in many countries, and oil will remain a valuable asset to finance the transformation and adaptation to this emerging model or any other non-oil growth model for Saudi Arabia.

Recent developments

Saudi Arabia continues to cope directly with the pandemic and indirectly with oil market implications from the pandemic. The 7-day new cases average increased since Jan 2021 (110 cases), as a result of the spread of the new more transmissible COVID-19 variant, to reach a second peak in July 2021 (1400 cases). Since then, cases had been on a downward trajectory reaching 160 cases in early Sept 2021. Meanwhile, vaccination rollout is making significant progress with fully inoculated individuals reaching 50 percent of the population. On the other hand, the Kingdom has navigated extraordinary volatility in the oil market, using the OPEC+ structure and its own carefully calibrated production adjustments to keep supply in line with the gradual global relaxation of containment measures.


The most recent labor market data shows that unemployment during Q1 2021 was 6.5 percent, 0.9 p.p. lower than in the previous quarter (Q4 2020), but still 0.8 p.p. higher than a year ago (Q1 2020). Similarly, the unemployment rate among Saudis fell to 11.7 percent in Q1 2021, down from 12.6 percent in Q4 2020, almost reaching the level from the previous year (11.8 percent in Q1 2020). In addition, total labor force participation rate has increased to 61.1 percent in Q1 2021, up from 58.2 percent in Q1 2020. Unemployment among women in Q1 2021 (16.1 percent) remains four times higher than for men (3.7 percent), and despite rising female labor force participation, a significant gender gap remains.


The recovery is expected to continue with growth reaching 2.4 percent in 2021 and 4.9 percent in 2022. The oil sector is projected to grow at -0.3 percent in 2021 following OPEC+ agreed path of production levels until Dec 2021 and rebound significantly in 2022 as OPEC+ production cuts end as announced. As the vaccination program gains more momentum and COVID-related restrictions are further eased, non-oil sectors will continue their growth trajectory, estimated to reach 4 percent in 2021 and 3.3 percent in 2022 reflecting stronger private consumption, gradual resumption of religious tourism, and higher domestic capital spending signaled through the National Investment Strategy, which targets SAR 12 trillion over the next 10 years. Headline inflation in 2021 is expected to reach 3.3 percent, as VAT-driven impact on inflation dissipates, but is expected to be offset by higher food and oil prices.



After a contraction of real GDP in 2020 due to pandemic related disruptions, the UAE’s economy is showing signs of recovery in 2021 driven by a successful vaccination program and a reduction in OPEC+ oil production cuts. Over the medium term the recovery will be bolstered by trade and tourism as health concerns wane. The outlook is subject to risks from slower global recovery, renewed coronavirus outbreaks and oil sector volatility. The authorities continue to work towards UAE’s long-run priority—diversification.

Key conditions and challenges

Economic transformation continues, but vulnerability remains. Over the past decade, the authorities have intensified efforts to diversify the economy away from hydrocarbons, successfully positioning the UAE as the region’s global trade, financial and travel hub. While the non-hydrocarbon sector accounts for two-thirds of GDP, the economy continues to rely on hydrocarbon activity as the engine of growth and the main source of government revenue, and thus the economy remains vulnerable to oil price volatility. Recent business regulation and investment reforms include the new Companies Law that allows 100 percent foreign ownership at the federal level in selected sectors, wide-ranging reductions in fees, consumer protections and improved bankruptcy provisions. However, economic departments at the emirate-level retain the power to approve business licenses.

Short-term challenges related to the coronavirus pandemic compound concerns regarding UAE’s government related entities (GRE’s) and the protracted slump in the real estate sector. The ability of GRE’s to meet their debt obligations is uncertain. Aggregate outstanding debt by Abu Dhabi’s GRE’s was U.S.$41.8 billion in June 2019. Dubai’s direct aggregate debt was US$33.6 billion in June 2020 (29 percent of Dubai GDP) while the estimated GRE debt was US$60.3 billion in 2018 (IMF). Almost US$30 billion of debt will fall due in 2023, which is more than what matured during Dubai’s debt crisis in 2009. Some of Dubai’s contingent obligations include payment guarantee of US$3 billion for the New Dubai World Facility, shortfall guarantees for obligations to contractors of US$2.2 billion for Dubai Aviation City Corporation and US$0.4 billion for Dubai Expo 2020. Meanwhile oversupply in the real estate and hospitality sectors has caused a protracted slump in Dubai’s real estate—residential property prices have fallen for the past six years and are 30 percent below their 2014 peak. This structural problem of oversupply may be exacerbated following the Dubai Expo which is now expected to undershoot its original target of attracting 11 million visitors.

While the authorities’ mitigation measures have cushioned the impact of the pandemic on the economy, the UAE’s near-term economic prospects depend on the recovery in global trade and global demand for oil as well as the risk of potential outbreaks of coronavirus variants. Continued diversification efforts will remain a key priority to maintain the UAE’s dynamic comparative advantage in the face of competition from other GCC countries.

Recent developments

Economic recovery in 2021 appears underway. COVID-19 and its economic fallout led to a contraction of real GDP by 6.1 percent in 2020. Oil production declined by 9 percent in line with OPEC+ production cuts. In 2021 a robust rebound in the non-hydrocarbon sector is evident. The Purchasing Manager’s Index (PMI) registered positive growth in February 2021 and in July-August it averaged at the highest level in two years. The hydrocarbon sector also picked up pace as OPEC+ production quotas were eased; oil production went up by 6 percent in August compared to Q1-2021. The health situation is improving with daily new cases below 1,000 in September (on a 7-day rolling average basis) for the first time since 2020. The UAE is leading the world in the vaccine race and has begun offering booster shots. The successful vaccination drive, resumption of travel, relaxation of lockdowns, and large-scale monetary and fiscal measures have aided the recovery. The Central Bank extended some pandemic support measures, until 30 June 2022, including the collateralized AED50 billion Zero Cost Facility.

Government finances continue to be strained. Fiscal outturns for the federal government in 2020 showed a deficit of 2.5 percent of GDP, compared with a surplus of 2.6 percent in 2019, due to reduced hydrocarbon revenue and fiscal mitigation measures. The consolidated deficit is estimated at 7.1 percent of GDP in 2020. Financing needs were mostly met by international debt issuances at the emirate level, with total public debt estimated at 37 percent of GDP in 2021.

Inflation in Q1-2021 continued its negative trend since 2019, albeit reduced, driven by lower prices for rents and energy compounded by the departure of expatriates (total population shrank by 2.3 percent in 2020). However, real estate prices that were depressed prior to 2020 due to oversupply of residential properties, are now showing an uptick in Abu Dhabi while in Dubai they continued to decline on average by 5.5 percent y/y.

The current account balance dropped to 6 percent of GDP in 2020 from 8.5 percent in 2019 due to underperformance of both hydrocarbon and non-hydrocarbon exports mitigated by lower imports. However, a rebound is expected in 2021 and the UAE’s external position remains strong, with official reserves equivalent to 5.9 months of imports (as of December 2020).

Understanding of poverty, inequality, and livelihoods in the UAE continues to be limited due to sparse representative household and labor data. According to the CBUAE, employment in March 2021 remained at the same level of December 2020, while salaries paid in Q1 2021 was higher than at the end of 2020 and higher than in February 2020 (the last pre-crisis month), as per CBUAE’s Wage Protection System.


The rapid roll-out of COVID-19 vaccines is expected to boost domestic spending and lead to a recovery in tourism. This coupled with a recovery in global trade, rising oil production and higher oil prices, will support recovery in the medium term (projected real GDP will average 3.4 percent in 2021-23). Authorities have taken steps to lure tourists to the country for the World Expo, such as providing visas to fully vaccinated travelers, which is expected to provide a boost, albeit a milder one than previously projected, to the economy. As the OPEC+ oil production quotas are eased oil revenues will enable fiscal and external balances to recover to pre-pandemic levels by 2023. Accommodative monetary policy, fiscal stimulus and a rebound in domestic demand, will lead to a return of moderate inflation. The long-run economic prospects continue to hinge on the authorities’ efforts to create a favorable business environment and further for support women’s participation in the economy, to foster non-hydrocarbon growth and create jobs in the private sector.