UAE eases fiscal stimulus

The UAE is believed to have eased a massive fiscal stimulus scheme it launched after the 2008 global fiscal distress in line with a recommendation by the International Monetary Fund (IMF), a bank report has said.

Public expenditure is projected to slip by around six per cent this year following a steady increase in the last 15 years although the country’s revenues are forecast to rise sharply, the Kuwaiti-based Global Investment House (GIH) said in a study, citing UAE government data and IMF estimates.

The expected decline follows IMF statements that the UAE government has told the Washington-based institution it would heed its proposals and ease post-crisis fiscal measures that involved record high spending by the country and massive financial support for its banking sector, the largest in the Arab region.

From around Dh289 billion in 2009, the consolidated financial account  (CFA) is projected to fall back to about Dh271bn in 2010, the first decline in CFA expenditure in nearly 15 years, GIH’s figures showed.

The decline comes after public spending leaped to an all time high in 2009 despite a steep fall in oil export earnings during that year.

The report showed the decline will ally with a surge in the UAE’s revenue to around Dh360 billion this year from Dh292 billion in 2009 to largely expand the CFA surplus to nearly Dh89 billion from only Dh3.6bn in 2009.

The UAE’s fiscal stimulus reached its peak in 2008, when spending was hiked by a massive 52 per cent to Dh254bn from Dh167bn in 2007.

The increase was supported by a surge in the country’s revenue due to a 30 per cent increase in crude prices. From around Dh330bn in 2007, public revenue soared to their highest ever level of nearly Dh450bn, creating a record high surplus of about Dh196 billion, according to official data.

Oil export earnings peaked at around Dh362 billion in 2008 compared with Dh235bn in 2007. They were estimated at nearly Dh217bn in 2009 and are projected by the IMF to climb to Dh281bn this year on the back of higher oil prices and a slight rise in the UAE’s average crude output.

A surge in crude prices over the past six years allowed the UAE to record massive surpluses in its CFA and this largely supported its overseas assets, controlled mostly by the Abu Dhabi Investment Authority.

Return on investments abroad has become a key source of income for  the UAE, which has used part of them to finance shortfalls in the budget in previous years.

As a result, the UAE has not joined other Gulf states in issuing bonds to cover CFA deficits and this has made it among the Arab countries with the lowest public debt. But there are plans by the Ministry of finance to issue bonds to finance some local projects and tap domestic liquidity.

The CFA reflects the UAE’s real financial situation as it involves federal expenditure and spending by each emirate.

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