UAE’s 2024 Financial Stability Report Forecasts Strong Economic Growth

The Central Bank of the United Arab Emirates (CBUAE) has released its highly anticipated 2024 Financial Stability Report, painting an optimistic picture for the UAE’s economic future. The report projects a strong economic outlook for 2025 and 2026, driven by the non-oil sector’s momentum and a resilient financial system. With real GDP growth expected to reach 4.4% in 2025 and accelerate to 5.4% in 2026, the UAE continues to solidify its position as a global financial hub. This growth is underpinned by robust banking performance, digital transformation, and strategic initiatives aligned with the UAE’s Vision 2030.

The report highlights the banking sector’s strength, the rise of non-bank financial institutions (NBFIs), and advancements in FinTech and digital payments, such as the Jaywan card scheme and Digital Dirham. It also emphasizes the UAE’s proactive approach to financial regulation, cybersecurity, and sustainable finance, positioning the country to navigate global economic challenges effectively.

Economic Growth Projections for 2025-2026

The CBUAE forecasts a vibrant economic trajectory for the UAE, with real GDP growth projected at 4% in 2024, rising to 4.4% in 2025, and accelerating to an impressive 5.4% in 2026. This upward trend is largely driven by the non-oil sector, which continues to thrive due to the UAE’s economic diversification efforts. Sectors such as tourism, construction, manufacturing, and financial services have been pivotal, with non-hydrocarbon growth reaching 6.2% in 2023, despite a 3.1% contraction in the hydrocarbon sector due to OPEC+ production cuts.

The non-oil sector’s resilience reflects the UAE’s strategic shift away from oil dependency, a cornerstone of Vision 2030. By fostering growth in diverse industries, the UAE is reducing its vulnerability to global oil market fluctuations. The CBUAE attributes this success to prudent economic management, robust financial fundamentals, and a proactive approach to addressing global risks. These projections signal a promising future for investors and businesses eyeing opportunities in the UAE economy.

Banking Sector: A Pillar of Stability

The UAE banking sector remains a bedrock of the country’s financial stability, characterized by strong capital buffers, high liquidity, and improved asset quality. The 2024 Financial Stability Report notes that banks have maintained capital and liquidity levels well above regulatory thresholds, even under stress test scenarios simulating adverse economic conditions. These tests confirmed that UAE banks can continue lending while absorbing macroeconomic shocks, highlighting their resilience in the face of global uncertainties.

The report credits effective risk management and prudent policies for keeping financial stability risks contained. The banking sector’s performance is further bolstered by the UAE Financial Stability Council, chaired by H.H. Sheikh Mansour bin Zayed Al Nahyan, which has enhanced coordination among financial authorities. This council, operationalized in 2024, plays a critical role in systemic risk oversight, ensuring timely responses to emerging threats and reinforcing the UAE’s position as a global financial hub.

Non-Bank Financial Institutions: Driving Growth

The non-bank financial institutions (NBFIs) sector, including insurance, finance companies, and exchange houses, has also shown remarkable performance. The insurance sector reported a 21.4% growth in gross written premiums, reaching AED 64.8 billion in 2024, with adequate solvency reinforcing policyholder protection. Finance companies maintained strong capitalization, while exchange houses demonstrated operational stability, contributing to the overall resilience of the financial ecosystem.

This growth in NBFIs underscores the UAE’s ability to diversify its financial services beyond traditional banking. By fostering a robust NBFI sector, the UAE is creating a more inclusive financial system, supporting small and medium enterprises (SMEs) and enhancing access to financial services across the region.

Digital Transformation: Powering Financial Innovation

The CBUAE has prioritized digital transformation as a key driver of financial efficiency and resilience. In 2024, the UAE saw significant advancements in FinTech, digital payments, artificial intelligence (AI), and data analytics. Key initiatives include:

• Jaywan Card Scheme: A domestic payment card system launched to enhance payment infrastructure and reduce reliance on international networks.
• Aani Instant Payment Platform: Gained widespread adoption, enabling faster and more secure transactions.
• Digital Dirham: Progress in the central bank digital currency (CBDC) initiative, boosting the efficiency of the financial system.

These innovations align with the UAE’s ambition to lead in FinTech adoption. The integration of AI and data analytics has streamlined banking operations, improved customer experiences, and enhanced risk management. Additionally, the UAE’s participation in the GCC Real-Time Gross Settlement system (AFAQ) and advancements in OpenFinance and SupTech further solidify its position as a financial technology leader.

Regulatory Advancements: Strengthening Resilience

The CBUAE introduced several regulatory initiatives in 2024 to bolster the financial system’s resilience. These include:

• Macroprudential Tools: New frameworks to mitigate systemic risks and ensure financial stability.
• Cybersecurity Standards: Strengthened requirements to protect against rising cyber threats, especially in light of global incidents like the Akira ransomware attacks trending on X.
• Sustainable Finance: Expanded focus on climate risk assessment, aligning with international best practices to address climate-related financial risks.
• Financial Stability Council: Enhanced coordination among regulators, improving risk oversight and response mechanisms.

These measures reflect the UAE’s commitment to aligning with global financial standards while addressing emerging challenges. The CBUAE’s proactive approach ensures that the financial system remains robust, even amidst global economic uncertainties.

Vision 2030 and Economic Diversification

The 2024 Financial Stability Report underscores the UAE’s progress toward Vision 2030, which aims to diversify the economy and establish the country as a global financial hub. The non-oil sector’s growth, coupled with advancements in financial technology and sustainable finance, aligns with this vision. The UAE’s safe haven status, robust fiscal performance, and social and business-friendly reforms have attracted significant capital inflows, boosting banking liquidity and real estate prices.

The report also highlights the UAE’s sovereign buffers, with general government debt projected to decline to 31.3% of GDP in 2024, supported by strong demand for local-currency Islamic T-sukuk. These fiscal achievements reinforce the UAE’s ability to sustain economic growth while managing global risks.

Challenges and Opportunities

Despite the positive outlook, the CBUAE acknowledges potential challenges. Rising real estate prices and rents, coupled with climate risks, require ongoing monitoring. The Financial Stability Council and enhanced macroprudential frameworks are critical to addressing these issues. The International Monetary Fund (IMF) recommends finalizing real estate exposure standards and considering a countercyclical capital buffer to further strengthen the banking sector.

Opportunities abound in the FinTech and sustainable finance sectors. The UAE’s efforts to attract virtual asset service providers while addressing associated risks position it as a leader in the crypto industry. Continued investment in digital infrastructure and regulatory innovation will drive long-term growth and competitiveness.

Future Outlook

Looking ahead, the CBUAE expects the UAE’s financial system to remain on a stable footing, supported by robust economic fundamentals, prudent management, and proactive risk monitoring. The non-oil sector’s momentum, combined with advancements in FinTech and sustainable finance, will drive growth in 2025 and 2026. The CBUAE’s commitment to innovation, transparency, and global collaboration ensures that the UAE remains a top destination for investors and businesses.

Khaled Mohamed Balama, CBUAE Governor, emphasized, “The UAE’s strong economic and financial conditions in 2024, despite global challenges, reflect our commitment to sustainable growth and financial stability.” This vision positions the UAE to navigate future uncertainties while capitalizing on its strengths as a global financial hub.