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How does the weakening dollar impact the UAE economy, given the existing peg-dollar price arrangement?

The existing peg of the UAE Dirham with the US dollar has become a very difficult charade to solve for the UAE, as well as other economies of the GCC area whose currencies are pegged to the US dollar.
The sharp drop in oil prices, on which the economies of the GCC area are still largely dependent, has exacerbated their budget deficits which needs the price of oil to be well higher than the actual price. This situation is worsened by the fact that plans to increase the economy's diversification will take time to be implemented.
This situation has forced the economies of the region to make large use their foreign currency reserve and largely tap into the capital market for funding.
The impact of the situation largely differs from country to country, but the UAE and Saudi Arabia have the highest sovereign funds and foreign currency reserves, they are much better equipped to sustain the budget deficit in these times. However, this still constitutes a major issue, and keeping their currency pegged with the US dollar, increases pressure on sovereign spending, the level of taxation and hence the overall population's wellbeing.
On the other hand, unpegging the currency from the US dollar doesn't seem to be a viable option either; these countries heavily rely on imports to provide for all their needs, unpegging the currency would result in a significant devaluation of the national currency.
If their currency was to be devalued, it would lead to higher importing costs, and severely impact the country's purchasing power, and would most likely spark an inflation cycle that could easily spiral out of control.
More so, it would impact the economy's ability to access the capital market for funding at convenient rates. Why? Because investor confidence would diminish if the currency was unpegged from the US dollar. Rightfully so, because it would be seen as a sign of instability and increased counterparty risk. That would deteriorate the credit score of the affected country and its securities.
To add insult to injury, the US dollar has already considerably weakened against other currencies, the Dollar Index (which tracks the US currency's value against a basket of the world's most relevant currencies) has dropped from over 102.8 in the second half of March, to as low as 92.79 on June 8, 2020. That is a drop of almost 10%.
If unpegging is not an option, for the reasons mentioned above, how would the weakness of the US dollar impact the UAE economy and the Dirham?
Unfortunately, there is no good news here; the devaluation of the US dollar, given the peg, obviously drags down the Dirham against other major currencies.
For example, at its highest on March 20, 2020, Dh3.91 could buy one Euro; at the time of writing it would take Dh4.35 to buy one Euro.
Such a situation increases the cost of import in an economy which is already facing a budget deficit and is still very much linked to oil prices. The break-even price becomes higher, adding more pressure on the sustainability of the national accounts in the long run. The only good news is that some sectors can benefit from a devaluation of the local currency, mainly the tourism and travel industry. But, travel restrictions and pandemic-related measures lower the positive impact of the industry. Paired with the way importing will be affected, any positivity will be offset by negative effects.
There is no simple or easy fix to this situation. The whole world must continue its fight against the C0vid-19 pandemic and keep it under control. In due time countries will be able to facilitate the normalisation of economic conditions in the short to medium term.  The UAE, now more than ever has to focus on its leadership in innovation within the GCC region and wise management of its large currency reserves, to be able to sustain the current headwinds and continue in their, so far brilliant, pursue of economic diversification.
- Roberto d'Ambrosio is the CEO of Axiory Global. Views expressed are his own and do not reflect the newspaper's policy.