UAE government presses on with spending despite uncertainty

• Larger projects uninterrupted
• Private sector showing strain
• War impact uneven across industries

UAE public sector spending has continued largely uninterrupted despite the Iran conflict. 

This is helping to support business activity even as the private sector shows significant signs of strain, according to a senior executive at consultancy KPMG.

The government has pressed ahead with major projects and procurement pipelines, with little evidence of delays or cancellations, said Emilio Pera, deputy CEO of consultancy KPMG Middle East and CEO of KPMG Lower Gulf. 

“Our projects are moving ahead and work will not stop. On the contrary, the pace will accelerate. We remain committed to a clear development agenda,” Sheikh Mohammed bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, announced in April.

Among the most significant is Dubai’s AED34 billion ($9.3 billion) Gold Line metro project, which will expand the emirate’s transport network by about a quarter and connect 55 real estate developments currently under construction.

IMAGO/Jürgen Schwenkenbecher via Reuters Connect

Projects, including the Dubai Metro expansion, ‘are moving ahead and work will not stop’

“From a public sector perspective, most of the larger projects we see are going ahead, especially in the UAE,” said Pera.

“When we look at the pipeline, RFPs [requests for proposals] being issued, responded to, contracted and executed, we haven’t really seen a slowdown.”

Pera said about 70 percent of KPMG’s regional work is tied to the public sector, spanning the UAE, Saudi Arabia, Oman, Lebanon and Jordan, underlining the extent to which government spending continues to anchor economic activity.

The contrast with the private sector is more pronounced, Pera said, particularly in light of the latest missile attacks on the UAE on Monday which pushed up oil prices and threatened to prolong the conflict further. 

“From a private sector perspective, there are definitely concerns around liquidity and how you manage that because of the uncertainty,” he said. 

“Many strategic initiatives, IPOs or mergers and acquisitions, for example, may see a slight slowdown.”

Further reading:

• Badr Jafar: Private sector must shoulder stability in times of war
• Drop in UAE monetary supply poses challenge for banks
• Dubai is open for business – but not yet business as usual

Disruption in the Strait of Hormuz led to a marked drop in new export orders in April, according to the latest purchasing managers’ index from S&P Global Market Intelligence.

Excluding the height of the Covid-19 pandemic in 2020, the latest downturn in foreign sales was the sharpest recorded since the survey began in August 2009.

To contain the impact on business margins, average prices charged by companies rose at a historically sharp pace during April. The rate of inflation was the fastest recorded since June 2011.

“Firms are looking to limit the impact where possible, with slowdowns in purchasing and hiring growth and even some reports of wage cuts, but a broad increase in price pressures is nevertheless still likely to dampen customer spending across the economy more widely,” said David Owen, senior economist at S&P Global Market Intelligence.

Further forecasts point to a modest softening in the UAE’s fiscal and economic position. The budget surplus is expected to ease from 5.2 percent of GDP in 2025 to 4.9 percent this year and 4.8 percent in 2027, according to the International Monetary Fund. 

Inflation has also been revised slightly higher, with Oxford Economics now forecasting 2.1 percent in 2026, up from a pre-conflict estimate of 1.8 percent.

UAE GDP growth

The impact of the conflict, now in its 10th week, has been uneven across sectors. Hospitality and tourism have been hardest hit, reflecting weaker travel demand and disruption to regional airspace, with recovery likely to take longer.

On Monday, Dubai Airports reported a 20 percent drop in passenger numbers in the first quarter of 2026, while a large number of hotels, including the iconic Burj Al Arab, have closed temporarily to undergo refurbishment programmes.

By contrast, financial services have remained steady, supported by strong capital positions and recent growth momentum. 

Pera said there has been no clear sign of multinational companies withdrawing from the UAE or the wider region, although in many cases expansion plans have been put on hold.

“It’s not a reversal. It’s more a question of timing,” he said. “That caution isn’t unique to the UAE. It reflects broader uncertainty in the global economy.”