A. SREENIVASA REDDY (ABU DHABI)
The UAE is expected to retain its competitive advantage and continue attracting global capital and labour as the impact of the regional war on the country's reputation as a place to live and do business fades over the next two years, Fitch Ratings said in an assessment.
"In Fitch's view, the war has only temporarily affected core operating environment strengths," the agency said in its special report, The UAE's Non-Oil Growth Model.
Fitch expects the federal and emirate-level governments to introduce further measures to improve the business environment, simplify administrative procedures for companies and residents and increase spending to support economic activity.
The rating agency said supportive government policies have been central to the UAE's development model, with its strengths including light regulation, an established legal framework, extensive infrastructure and low taxation.
It noted that the UAE's reform momentum has been broad and consistent, supported by long-term development plans.
These strengths are reflected in the UAE's fifth-place ranking among 69 countries in the IMD Global Competitiveness report. The country also ranked among the top three in six of the report's 20 component indicators.
Fitch said the war had not undermined these operating environment advantages, while the government had introduced several initiatives to support businesses, including deferring fees for various government services and providing relief to the tourism sector.
The UAE has also continued expanding its international trade partnerships through Comprehensive Economic Partnership Agreements (CEPAs). An agreement with Canada in July brought the total number of agreements to 38, according to Fitch.
Looking ahead, Fitch expects government measures to focus on reviving tourism and logistics once regional stability improves, while stimulating growth in targeted sectors, including artificial intelligence and technology, financial services and decarbonisation.
It also anticipates measures to address infrastructure bottlenecks, including local transport congestion, alongside efforts to streamline administrative procedures.
The agency expects capital expenditure on infrastructure and projects undertaken by government-related entities (GREs) to increase significantly in 2026 and 2027, helping to strengthen economic resilience, stimulate activity and restore investor confidence.
Fitch also sees scope for financial support to economic activities, including measures that could effectively subsidise certain services, such as lower-cost flights.
The rating agency said Abu Dhabi, Dubai and Ras Al Khaimah have sufficient fiscal space to increase spending on post-war economic recovery programmes without raising taxes.
Abu Dhabi, in particular, has substantial sovereign wealth fund assets and a low fiscal breakeven oil price, allowing it to deploy large fiscal stimulus measures without significantly depleting its financial buffers or running large budget deficits.
Fitch noted that Abu Dhabi has previously supported the wider UAE economy by financing special programmes administered by the federal government.
The mobilisation of large pools of sovereign capital through entities with a local presence is also expected to support the UAE's expanding financial services sector.
Fitch said government and GRE spending would cushion the short-term impact of the conflict on affected sectors and limit its effects on the broader economy. Several emirates have already accelerated tendering for projects, while further investments are expected to strengthen infrastructure resilience and investor confidence.
Fitch projects the UAE's expatriate population to increase by 2% in 2027 and 3% in 2028, compared with estimated average annual growth of 4.5% between 2022 and 2025.
The rating agency expects the UAE's non-oil economy to return to growth in 2027, expanding by 6.1%, followed by 4.3% growth in 2028, after a projected contraction in 2026.