A sharp fall in the value of assets held by Adia and other government entities abroad depressed the UAE’s 2009 investment income to one of its lowest levels in more than 10 years, a Kuwait investment bank has said.

From around Dh30.2 billion in 2008, the country’s income from its overseas investments plunged by around 39 per cent to nearly Dh18.3 billion in 2009, Global Investment House (GIH) said in a study.

The income had already dipped by nearly 35 per cent from Dh46.5 billion in 2007 because of the plunge in the country’s overseas assets value following the 2008 global fiscal distress that has also hit many other banks and funds.

They had recorded a steady increase in the few years before the crisis from around Dh24.6 billion in 2005 to Dh33.7 billion in 2006 before hitting an all time high in 2007 as a result of massive petrodollar surpluses.

The surge in investment income before the crisis was reflected by massive surpluses in the UAE’s consolidated financial account (CFA), which covers the federal budget and spending by each emirate.

GIH, which cited the International Monetary Fund (IMF) and its own estimates, gave no details for the investment income but the bulk of the UAE’s assets abroad are controlled by the Abu Dhabi Investment Authority (Adia), one of the world’s largest sovereign wealth funds (SWFs).

According to estimates by the US Council on Foreign Affairs, ADIA controlled around $453 billion at the end of 2007 but the global crisis depressed them to nearly $328 billion at the end of 2008. The Council put Adia’s crisis-related losses at $183 billion but said its assets were partly offset by new net inflow of around $59 billion through 2008 as a result of a sharp rise in crude prices.

GIH’s figures showed a plunge in the UAE’s oil income in 2009 allied with the decline in investment revenue and earnings from other sources to push the country’s fiscal surplus to one of its lowest levels of around Dh3.6 billion in 2009 from a record high of Dh196.3 billion in 2008. The surplus stood at around Dh163.8 billion in 2007 and Dh171.1 billion in 2006.

The sharp drop in the 2009 surplus followed a collapse in the UAE’s oil export earnings by nearly 40 per cent to Dh217.5 billion from Dh362.1 billion in 2008 because of lower oil output and a 30 per cent decline in crude prices.

This depressed the total revenue by around Dh158 billion to Dh292.6 billion in 2009 from Dh450.3 billion in 2008.

Despite the plunge, the UAE boosted spending to a record high of around Dh289 billion in 2009 from Dh254.9 billion in 2008.

A breakdown showed capital expenditure soared to its highest level of Dh37.9 billion last year from Dh31.5 billion in 2008 and only around Dh17.3 billion in 2007 as the UAE pushed ahead with a major fiscal stimulus programme to mitigate the adverse repercussions of the crisis.

Current spending grew to around Dh196.7 billion from Dh166.8 billion as a result of increases in most expenditure categories. Wages and salaries swelled to Dh33.6 billion from Dh29 billion while goods and services soared to around Dh61.9 billion from Dh49 billion.

“According to the IMF, based on the World Energy Outlook’s oil price projections, the total fiscal position of the UAE is expected to increase to a surplus of approximately 10 per cent of GDP in 2010,” GIH said.

“The surplus is expected to grow to 15 per cent of GDP in the medium-term, due to a steady increase in non-hydrocarbon revenues related to the introduction of the VAT. Specifically, Dubai is expected to reduce its deficit in the medium term upon completion of some large investment projects, while Abu Dhabi is projected to record constant, large hydrocarbon-driven surpluses over the medium term.”