United Arab Emirates

major macro economic indicators

(e): Estimate (f): Forecast *General government gross debt

RISK ASSESSMENT

GDP growth to edge up after a sharp slowdown in 2023

The ensuing global increase in oil demand on the back of solid Asian growth and the resulting higher oil prices should sustain the United Arab Emirates (UAE)’s economy in 2024. However, the OPEC+ extension of oil production restrictions until the end of 2024 will continue to be a drag. Meanwhile, the non-oil sector activity will remain robust. Rising competition from neighbouring Saudi Arabia will push the authorities to accelerate economic reforms (i.e. new commercial law allowing foreigners to fully own companies, new labour law shifting weekend days from Friday and Saturday to Saturday and Sunday in 2022) which will have positive impact on investments (around 20% of GDP). Easing inflation, and an influx of foreign workers attracted by economic diversification in Abu Dhabi and Dubai (Emiratis constitute roughly 10% of the total population) will help sustain private consumption (nearly 40% of GDP). Moreover, the UAE, which has remained neutral in the war between Russia and Ukraine, have welcomed growing numbers of rich Russian tourists and migrants, but also workers from the high-tech sector fleeing Western sanctions. They will further boost the local real estate market and consumption. Also, the UAE will continue to act as a trading hub for Russian gold, a role that has increased since the start of the war in 2022. The UAE imported around 76 tonnes of Russian gold worth nearly USD 3 billion between February 2022 and March 2023 compared with 1.3 tonnes in 2021, according to Russian customs. Similarly, since Switzerland applies sanctions, oil trading has moved from there to the UAE, also leading to the development of storage capacities in Fujairah. The political neutrality of the UAE and their strategic location close to African and Asian markets are expected to strengthen these positions. Independently, the government’s strategy to increase the number of foreign visitors to diversify into tourism will also be supportive. The Asia-Pacific and the Middle-East regions will be the two largest sources of arrivals in the forecast period (estimated at between 5.1 million and 5.09 arrivals in 2023, respectively, as per the BMI). In 2024, tourism receipts are expected to rise by 7% y-o-y to USD 43.7 billion (9% of GDP), which also will add to the weight of private consumption. Government consumption (around 12% of GDP), however, will be mostly targeted at business reforms and incentives instead of consumption-boosting stimulus programs. The central bank is expected to walk in the US Federal Reserve’s footsteps in accordance with the peg to the dollar, thereby helping to reduce inflationary pressures. That said, rising rent prices will drive the housing component of the CPI basket (35%), consequently keeping inflation above the 2020-2022 average of around 1.3 percent. Net exports contribution to GDP growth will diminish in 2024, in line with constrained hydrocarbon production, while demand for imported consumption and capital goods’ will remain strong on the back of resilient private consumption and large infrastructure projects.

Narrower twin surpluses expected in 2024

Flat oil production, which generates around 50% of fiscal revenues and around 60% of merchandise exports, will drag on budget and current account surpluses. The UAE’s oil production is estimated to fall by nearly 3% in 2023 and will stay almost flat in 2024 (around 4 million barrels/day) due to the OPEC+ decision in June 2023 to cut output further and extend the restriction period until end-2024. Non-oil fiscal revenues on the other hand are expected to rise on back of the introduction of the UAE’s first corporate tax of 9% early in 2023 and resilient private consumption. Higher trading revenues are expected. On the expenditure side, public investment linked to economic diversification will raise demand for imported capital goods. Higher service imports such as outbound travelling will add to the deficit of services. Introduction of different types of visa allowing a larger immigrant population will increase the remittance outflows (net private transfers estimated at 9% of GDP in 2023). The UAE will continue to record ample foreign exchange buffers. The central bank holds around USD 160 billion in foreign assets at June 2023. The Abu Dhabi Investment Authority (ADIA) has an estimated USD 850 billion worth of assets under management. This supports the UAE’s strong position to maintain the currency peg in place.

Political stability in a volatile region

In March 2023, the UAE’s leader named his eldest son as Crown Prince of Abu Dhabi and his likely successor as President of the Federation. This reshuffle is expected to have a limited impact on the political stability on the UAE. Current stability is set to reinforce the country’s, global and regional, shipment and trade hub position. However, the emirates’ level of transparency and democracy will continue to represent challenges as security and social benefits rely mostly on oil revenues. The UAE shares maritime borders with Iran and tensions between the two countries have fluctuated in the past. After six years of tense relations, ties between the two started to improve in 2023 at both government and private-sector levels. The two countries reopened their respective embassies and held high-level official visits. This will help to ease tensions in the region and could increase trade and business opportunities in sectors such as tourism, infrastructure, and technology.

Last updated: September 2023

PAYMENT

The most common methods of payment in the United Arab Emirates (UAE) are cash, credit and debit cards, Open Accounts, Letters of Credit, Documentary Collections, and cheques.
Cheques are the most common and preferred method of payment in the country, especially in commercial transactions, as there are no costs involved with issuing cheques, unlike transactions that are backed by a Letter of Credit or any other type of a bank guarantee. Cheques constitute a reliable debt recognition title that may be enforced directly before a judge. In addition, UAE criminal law states that a person who delivers a cheque in bad faith without sufficient consideration may be imprisoned.
Until 2016, post-dated cheques were considered the best protection against late payments, and were frequently used in the UAE as guarantees, as bounced cheques are considered as a criminal offence. The new law is silent regarding Non-Sufficient Funds (NFS) cheques, and only states in Article 32 that all the legal proceedings, procedures, and execution procedures against the debtor’s assets shall be suspended once a decision is initiated until the ratification of the scheme of composition. Composition is defined in Article 5 of the new law as proceedings aiming to assist the debtor to reach a settlement with creditors pursuant to a scheme of composition under the supervision of the court, and with the help of a trustee to be appointed in accordance with the provisions of this law. In light of the above, any claims or legal proceedings filed against the debtor – whether related to NSF cheques or another instrument (this also applies to criminal proceedings relating to NSF or bounced cheques) – will be suspended once the court has accepted the debtor’s application for the aforementioned prevented composition. It worth noting that any claim related to an NSF cheque will be treated in the same way as any other unsecured claim which may be filed against the debtor.
UAE banks are part of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is used when transferring money between banks, particularly for international wire transfers.

DEBT COLLECTION

Amicable phase

Debt collection begins with the amicable approach, during which the debtor receives a notice for payment, followed by a phone call from the creditor or an agency, with the goal of reaching a payment agreement.

Legal proceedings

The UAE Courts are comprised of:

• the Court of First Instance;
• the Court of Appeals;
• the Abu Dhabi Supreme Court.

Located in each Emirate, courts of first instance have general jurisdiction and include a Civil Court, a Criminal Court and a Shariah Court. Following a judgement from one of these courts, the concerned parties have the right to appeal to the Court of Appeals on factual and/or legal grounds. Following this, aggrieved parties have the right to appeal to the Supreme Court on matters of law only. Shariah Court handles civil matters between Muslims.

Fast-track proceedings

An order of payment is a procedure where a party applies to the courts for summary judgment against a defendant for commercial debts, substantiated by a valid but unpaid commercial instrument such as a bill of exchange, promissory note or cheque. If a defence is filed, the dispute must be solved via an ordinary lawsuit before the court of first instance.

Ordinary proceedings

Proceedings start by filing a plaint (complaint) in the relevant court. It must meet procedural requirements, and include both the debtor’s information and the details of the debt. The court issues a summons to be served to the defendant, which includes an endorsed hearing date.

Once an answer has been filed by the debtor, the trial process is adjourned to allow the creditor to respond. Further adjournments are given so that memoranda can be submitted by both parties. Once the court believes that the case has been sufficiently pleaded, it reserves the matter for judgment. The entire proceeding is based on written submission supported by documentary evidence. The court will issue remedies in the form of specific actions and compensatory damages. Injunctive relief is not generally available and attachment orders are difficult to obtain.

Enforcement of a Legal Decision

A court judgment becomes enforceable once it is finalised. If the debtor fails to comply with the court’s decision, the creditor may request enforcement mechanisms before the judge, such as an attachment order, or even the imprisonment of the debtor.
Any foreign awards must first be recognized as a domestic judgment. When bilateral or multilateral reciprocal recognition and enforcement treaties exist, this requirement is simply a formality. In the absence of such agreements, an exequatur procedure is provided by domestic private international law.
The latest law update in UAE is related to commercial claims, which can now be filed via performance order lawsuits if the financial claim is subject to the enforcement of a commercial contract, or the right holder is a creditor with a commercial paper and debt is acknowledged.
Procedures and Duration of Order: 

• Sending a notary public legal notice to the debtor.
• Notifying the notice to the debtor with a successful result.
• Five days minimum from the date the debtor receives the notice as a period to allow the debtor to settle the dues.
• Register the Performance Order at the court or on the electronic system of the court according to the spatial jurisdiction of each court.
• The decision shall be issued by the judge within 3 working days by either acceptance or rejection.
• In case of issuance of the decision in creditor favor, a request to notify the debtor shall be submitted.
• The court shall notify the debtor in the manner prescribed by the law.
• An appeal period of 15 days from the date of the decision is notified if the debtor will appeal.
• The appeal court will review the debtor defense if it’s valid the court will schedule a hearing and invite both parties to investigate, if the court see the defense is not valid, the court will reject the appeal directly.
• If the debtor didn’t appeal in a period of 15 days from the date, he receives the decision notice, then the execution shall take place.
• Duration of the whole process approximately: 90 to 120 days.

Insolvency Proceedings

On September 4, 2016, the final draft of the Federal Law on Bankruptcy was approved. The new insolvency law proposes three new insolvency procedures:

Financial Reorganization Procedure

An out of court, private conciliation process that is applicable to entities who have not yet formally entered the zone of insolvency, which has the aim of achieving a consensual, private settlement between parties. An independent mediator with bankruptcy expertise is appointed by the commission for a period of up to four months to oversee discussions between the debtor and its creditors.

Protective Composition Procedure (PCP)

A debtor that is (a) experiencing financial difficulties, but is not yet insolvent; or (b) has been in a state of over-indebtedness or cessation of payments for less than 45 days, proposes a compromise with its creditors outside of formal bankruptcy proceedings. The PCP includes a moratorium on creditor action (including enforcement of secured claims) and places the debtor under the control of an office holder appointed from the Commission’s (the government agency that has the authority to oversee the insolvency proceedings) roll of experts, for an initial observation period of up to three months.
Other key tools of the PCP process include the ability to raise debtor-in-possession (DIP)-style priority funding, which may be secured on unsecured assets or take priority over existing security, and ipso facto previsions that prevent the invocation of insolvency-linked contractual termination provisions – provided the debtor performs its executor obligations. The debtor is given time to file a plan, which is then voted on by creditors.

Bankruptcy

The procedure is split into two elements:

• a rescue process within formal bankruptcy proceedings, which is procedurally similar to the PCP (including an automatic moratorium and the ability to raise DIP funding);
• a formal liquidation procedure.

Recent Update to Bankruptcy Law:

• Various changes announced on 22 October 2020, but yet to be published in the official gazette. 
• Key change – New Concept: “Emergency Financial Crisis” (EFC), which is defined as: “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.”
• New provisions changing the Bankruptcy Law during an EFC.
• UAE Cabinet to determine when an EFC exists and it has yet to do so. It would appear that a UAE Cabinet decision is required before parties can rely on the new provisions;
• If an EFC is announced, the new law provides certain protections for debtors, including:
  • Debtors not required to file for bankruptcy if he has failed to pay his debts within 30 days due to EFC;
  • Debtors can still file for bankruptcy during EFC and court may elect not to appoint a trustee in the proceedings if debtor proves the disruption to his business was caused by the EFC;
  • Creditors cannot file as the court will not accept bankruptcy applications against any debtors during the EFC.

Settlement with creditors (only applies to debtor filings):

• If bankruptcy is accepted by court, the debtor may request 40 business days to negotiate settlement with his creditors. If approved by the court, it shall be published and include an invitation to creditors to negotiate settlement within 20 business days;
• Settlement period offered to creditors shall not exceed 12 months;
• If settlement reached with creditors with 2/3rds of the debt, it shall be binding on all creditors (even those who did not participate);
• Settlement negotiations must be in writing and approved by the court.

Existing Bankruptcy Proceedings

• Bankruptcy proceedings filed prior to the declaration of an EFC will continue, although the court can double the time periods set under the Bankruptcy Law.

Directors’ Liability

• During an EFC directors may pay unpaid salaries of employees (excluding allowances pay rises and other contingent payments), without incurring any liability.

New Money

• Debtor may obtain new financing (secured and unsecured) during an EFC with court approval. This will have priority over existing debts.

Other changes - suspension of legal proceedings

• Amendments provide for an end date of the suspension of legal proceedings that did not previously exist under Articles 32 and 162 of the Bankruptcy Law.
• Proceedings shall be suspended until (i) the ratification of the restructuring plan; or (ii) the lapse of ten months from the date of commencement of the bankruptcy / preventive composition.
• The Court may extend this period by an additional four months.
• Secured creditors may apply to the Court to grant them an exception to the suspension of proceedings so that they can enforce their rights.