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UAE oil surge boosts Arab financial surplus

By Nadim Kawach

Arab countries recorded a sharp increase in their combined external financial surplus in 2007 as a result of higher crude oil exports and the bulk of the increase was in the UAE, according to official Arab figures.

But a surge in public expenditure in some member states reduced their combined budget surplus, while their economy slowed down in 2007 compared with the previous year, revealed figures published in the 415-page 2008 report released this week by the Abu Dhabi-based Arab Monetary Fund (AMF).

The report, published in collaboration with the Arab League and two other official Arab organisations, showed that the UAE maintained its position as the second-largest Arab economy and the third-largest investor after Saudi Arabia and Algeria. It also showed that the total Arab population increased by around 7.6 million to reach 326 million at the end of 2007 but the per capita income grew by more than 11 per cent and most regional nations recorded increases in their income.


From round $65.4 billion (Dh240bn) in 2006, the combined Arab Balance of Payment (BoP) surplus jumped to a record $128.4bn in 2007, said the report, which is usually released late in the year and covers the previous year.

The bulk of the increase was in the UAE, where the BoP surplus leaped by more than $43bn to $49.8bn from just $6.5bn in the same period in the previous year.

The report gave no reason for the sharp rise in the UAE's BoP surplus but according to the country's Central Bank, it was caused by a surge in private capital flow and higher exports of crude oil and other products.

In local currency value, the UAE's surplus in the BoP, the difference between the country's internal and external financial and commercial transactions, rocketed to more than Dh183bn last year from around Dh23.8bn in 2006 despite a sharp rise in imports and the outflow of public sector funds.


"This was mainly due to the sharp increase in private sector's inflows, which leaped from Dh87.59bn in 2006 to Dh217.32bn in 2007, an increase of around 148.1 per cent, despite the large rise in the public sector's outflows from about Dh146.58bn in 2006 to Dh175.80bn in 2007," Central Bank said.

"The final position of the balance of payments in 2007 shows a surplus of as high as Dh183.24bn, against a surplus of Dh23.89bn in 2006."

The bank gave no reason for the surge in private capital inflow but experts attributed it to the fact that many companies have repatriated part of their overseas investments following global market turmoil and an upsurge in local projects.

The upsurge was reflected in a large increase in the country's imports, which leaped by over Dh100bn to a record Dh486.5bn in 2007 from Dh367.4bn in 2006, according to the bank.

A breakdown showed Algeria recorded the second-largest increase in the BoP surplus, which jumped to around $29.5bn from $17.7bn in the same period. Saudi Arabia's surplus grew slightly to around $18.4bn from $17.6bn, while Kuwait's balance fell to $3.22bn from $3.58bn.


As for the budget balance, it said the surplus fell to $91.2bn in 2007 from a record $142.7bn in 2006 mainly due to higher public expenditure by some members, mostly oil producers.

The bulk of the decline in the surplus was recorded by Saudi Arabia, plunging to around $46.1bn from $74.7bn in the same period.

The UAE budget surplus receded to about $17.3bn from $19.7bn, while that of Kuwait slumped to around $17.9bn from $23.5bn.

The AMF report showed the decline in the collective Arab budget surplus in 2007 was caused by higher growth in public spending than in revenue.

From around $352.6bn in 2006, the combined government expenditure increased to nearly $430.1bn in 2007, a growth of about 22 per cent. Revenue rose from $495.3bn to $521.4bn, a growth of only 5.2 per cent.

According to the report, which gave no figures for Iraq and Somalia, the increase in revenue was due to higher oil prices, which boosted the combined Arab crude export earnings to $456.1bn from $428.8bn.


Despite the increase, the combined nominal Arab gross domestic product (GDP) recorded slower growth of around 14 per cent in 2007 compared with 18.2 per cent in 2006. In real terms, growth in 2007 was also lower, standing at around 5.6 per cent compared with nearly 6.4 per cent in 2006.

"Nominal and real growth in the Arab economy in 2007 is considered relatively high," the report said.

"Growth was driven by reforms in some member states and an increase in crude export revenues due to higher oil prices."

GDP breakdown showed the UAE was third only to Saudi Arabia and Algeria in terms of investments, which peaked at around $40bn. They stood at nearly $85.5bn in Saudi Arabia and $47bn in Algeria.

In terms of final consumption, involving total spending on consumer goods and services by the government and families, the UAE was ranked second, with around $103bn. Saudi Arabia topped the list with nearly $187bn.

The report showed the UAE maintained its position in 2007 as the second-largest Arab economy after Saudi Arabia. Its GDP of around $192bn accounted for nearly 13 per cent of the total Arab economy although its population of nearly 4.5 million formed only around 1.3 per cent of the Arab population.

In per capita, the UAE remained the second wealthiest Arab nation after Qatar, with its GDP per capita income swelling to around $42,273 in 2007 from nearly $38,934. Qatar maintained its status as the richest, with around $72,376.

A breakdown showed all Arab states, except Saudi Arabia, saw higher GDP per capita in 2007 and experts attributed the decline in Saudi Arabia to lower oil production and high growth in its population.