Abu Dhabi’s fiscal gap peaks in 2009: report

A surge in public expenditure allied with a steep fall in revenue to widen Abu Dhabi’s fiscal deficit to a record high of $30.1 billion in 2009 but the gap is expected to shrink this year, a key Saudi bank has said.

But the deficit could be easily covered by the emirate’s enormous financial muscle as spending does not include profits by the state-run Abu Dhabi National Oil Company (ADNOC) and the high income from the emirate’s overseas investments, among the largest in the world.

The figures by the Saudi American Bank Group (SAMBA) showed a sharp fall in oil prices in 2009 over the previous year slashed Abu Dhabi’s revenue to around $38.5 billion last year from a record high of $74.9 billion in 2008.

Oil export earnings alone plunged to $33.2 billion from $73.4 billion due to the decline in prices and a cut of nearly 200,000 bpd in the emirate’s crude output.

The decline in revenue did not dissuade the government from hiking spending, which soared to an all time high of about $68.6 billion last year from nearly $51.2 billion in 2008 as the emirate pushed ahead with fiscal expansion plans to counter the repercussions of the 2008 global financial distress.

As a result, the emirate’s budget balance turned from a massive surplus of around $23.7 billion in 2008 into a record high shortfall of $30.1 billion.

SAMBA’s projections showed the deficit could dip to around $23.1 billion in 2010 on the back of lower expenditure. The figures showed spending could be cut to around $56.5 billion this year from $68.6 billion but revenue could also shrink to nearly $33.4 billion from $38.5 billion, excluding ADNOC’s earnings and the emirate’s income from its investments abroad.

“The Abu Dhabi fiscal presentation is somewhat misleading as it does not include investment income earned on financial assets, nor the profits earned by the state owned ADNOC, which are periodically transferred to ADIA and ADIC: which in turn provide finance for any budget deficits,” SAMBA said.

“In addition, revenues in 2010 are likely to be higher than budgeted given that oil prices will come in close to $18 above the $60 assumed in the budget.”

The report showed Abu Dhabi’s fiscal deficit accounted for around 20.2 per cent of GDP in 2009 and is forecast to plunge to nearly 13.5 per cent because of the expected drop in the shortfall and growth in the emirate’s GDP. In 2008, the surplus accounted for as high as 13 per cent of GDP and was the highest positive balance achieved by Abu Dhabi as a result of high oil output and a surge in crude prices to their highest average of around $95 a barrel.

Abu Dhabi, the main oil and gas producer in the UAE, has not resorted to borrowing to cover the shortfall, which normally is calculated on the basis of hydrocarbon and non-oil exports, excluding ADNOC profits and the return from overseas investments, controlled mainly by ADIA.

Abu Dhabi has not published budget figures for most of the past years but bankers believe its budget accounts for nearly two thirds of the UAE’s consolidated financial account (FCA), which covers the federal budget and individual expenditure by each emirate.

Estimates by the Abu Dhabi-based Arab Monetary Fund (AMF), a key Arab League establishment, showed the UAE boosted public spending to its highest ever level of Dh289 billion in 2009 despite lower oil prices.

The 2009 expenditure was way above the 2008 spending of Dh254 billion although oil prices in 2008 were nearly 58 per cent higher than in 2009.

The AMF cited official UAE government figures showing revenue in 2009 plunged to around Dh292.6 billion from a record high of Dh450.3 billion in 2008.

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

“Despite the sharp fall, the UAE consolidated finance account recorded a surplus of around Dh3.5 billion in 2009……this is compared with a record budget surplus of nearly Dh197 billion in 2008,” the report said.
 

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