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28 March 2024

IMF sees lower UAE spending in 2010-2011

High expenditure of 38.2% of GDP (Supplied)

Published
By Nadim Kawach

The UAE is expected to spend less this year and in 2011 after boosting public expenditure to its highest ever level in 2009 to counter the adverse effects of the 2008 global fiscal distress, IMF figures have shown.


The Washington-based International Monetary Fund put the country’s expenditure at as high as 38.2 per cent of GDP last year and projected the level to dip to nearly 32.6 per cent this year and 27.4 per cent in 2011.


It gave no spending figures by analysts said expenditure could be only slightly lower than the 2009 level on the grounds the UAE’s gross domestic product is expected to grow this year and in 2011 after contracting by 2.5 per cent in 2009.


IMF forecasts showed the UAE’s real GDP, the largest in the Arab world after Saudi Arabia’s economy, would swell by about 2.4 per cent in 2010 and 3.2 per cent in 2011 mainly due to higher crude output and growth in non-oil sectors.


“Since GDP growth is only around 2.4 and 3.2 per cent in 2010 and 2011, I expect public spending to be lower than in 2009 because IMF is forecasting a large decline in expenditure-to-GDP ratio,” an Abu Dhabi-based banker said.


“Perhaps the decline in spending will not be big as the UAE has usually maintained a high level of expenditure in its consolidated financial account (CFA), mainly by Abu Dhabi and Dubai.”


In a report early this year, the IMF said the UAE had indicated it would ease an extensive fiscal expansionary police it launched after the eruption of the global crisis to prevent a steep slide in its economy.


CFA spending had steadily grown over the previous years but it shot up by more than 13 per cent to its highest ever level of Dh289 billion in 2009 despite a large drop in oil export earnings because of lower prices and production.


The 2009 expenditure was nearly Dh35bn above the 2008 spending of Dh254 billion although oil prices in 2008 were 58 per cent higher than in 2009.
In a report on the UAE’s CFA, which comprises the federal budget and spending by each emirate, the Abu Dhabi-based Arab Monetary Fund (AMF) cited official UAE government figures showing revenue in 2009 plunged to around Dh292.6bn from a record high of Dh450.3bn in 2008.


It said the decline was a result of a sharp fall in hydrocarbon export earnings to nearly Dh217.5bn last year from a peak of Dh362.1bn in 2008.


“Despite the sharp fall, the UAE consolidated finance account recorded a surplus of around Dh3.5bn in 2009…this is compared with a record budget surplus of nearly Dh197bn in 2008,” the report said.


The UAE has not yet released budget details for 2008 and 2009 but official data for its CFA in the past four years showed it has recorded massive surpluses. The surplus stood at around Dh75bn and Dh69bn in 2006 and 2007 respectively and was achieved despite a steady rise in actual spending.


The AMF, a key Arab League financial establishment, said heavy expenditure offset the large decline in the crude sector, adding that the UAE’s real GDP contracted slightly in 2009 despite a fall of more than 10 per cent in the oil sector.


“The decline followed growth in the real GDP of around 5.1 per cent in 2008…inflation in 2009 also sharply dropped after peaking in 2008.”


In previous years, the UAE had resorted to its mammoth overseas assets to finance its budget deficit and avert borrowing from banks as is the case in Saudi Arabia and other Gulf oil producers.