Government deposits hit high of Dh114bn

Government deposits with the UAE's banks have more than quadrupled over the past seven years to reflect a sharp growth in overseas assets and their coverage of the country's budget deficit, official figures show.

Deposits hit a record high of Dh114.6 billion at the end of March, compared with only Dh27.3bn at the end of 2001, the Central Bank figures showed.

At the end of 2002, they climbed to around Dh36.9bn and continued their rapid growth to swell to Dh93bn at the end of 2006.

By the end of 2007, the deposits have risen to Dh114.5bn and maintained their high level in March.

Bankers said the increase illustrated the rise in the UAE's oil income and consequently its overseas assets over the past seven years.

From around $22bn (Dh80.7bn) in 2001, the oil export earnings shot up to a record $71bn in 2007 and the earnings are projected to be much higher this year as a result of a sharp increase in crude prices.

Estimates by the Organisation of Arab Petroleum Exporting Countries (Oapec), which groups the UAE with nine other Arab oil producers, showed the UAE's cumulative oil income between 2001 and 2007 totalled around $225bn and is expected to surge much above Dh1 trillion by 2008.

"The large increase in the UAE's income over the past few years has allowed it to build up its overseas assets massively and this in turn has enabled it to easily finance any budget deficit without resorting to withdrawing from its deposits with the UAE banks," an Abu Dhabi-based bank manager said.

"In previous years, the UAE had resorted to both overseas assets and bank deposits to shore up the shortfall… this explains the rapid growth in government deposits with local banks as all the deficit has been financed through return from those assets since 2000. In 2005, 2006 and probably 2007, the budget recorded massive surpluses and this sharply boosted those deposits."

The UAE has not yet published its 2007 consolidated finance account, which covers the federal budget and local spending of each emirate, but official Arab estimates showed the budget could have recorded its highest ever surplus of 30 per cent of the gross domestic product, far higher than the 12 per cent in 2006.

The Inter-Arab Investment Guarantee Corporation, a key Arab League financial institution, did not specify the size of the surplus but it could be as high as Dh219bn considering that the GDP was officially put at Dh729.7bn in 2007.

At that level, the surplus was as high as triple the 2006 surplus of Dh72.4bn and more than five times the 2005 surplus of around Dh39.4bn.

In previous years, the CFA suffered from persistent deficits because of high public spending and sharp fluctuations in oil prices.

The actual deficit stood at Dh1.5bn in 2004, nearly Dh14.4bn in 2003 and as high as Dh29.3bn in 2002.

It surged to an all-time high of around Dh29.6bn in 2001 due to a sharp rise in expenditure. Unlike other Gulf oil producers, the UAE has not resorted to direct borrowing or issuing bonds in previous years to shore up its budget deficit. Instead, it has used part of return from its overseas assets to finance the shortfall.

The bulk of those assets are controlled by the Abu Dhabi Investment Authority, believed to be the world's largest sovereign wealth fund, with estimated assets of between $500bn to $875bn at the end of 2007.

The Central Bank figures showed the government's deposits accounted for nearly 16 per cent of the total resident deposits of around Dh703bn with the UAE's 24 national banks and 27 foreign units at the end of March.

The private sector was the largest investor, with deposits of around Dh300bn. It was followed by individual investors, with total deposits of Dh224bn.

The numbers

$71bn: was the oil export earning in 2007, a record high from $22bn in 2001.

Dh1trn: is the expected cumulative oil earning of the Emirates from 2001 to 2008

$875bn: assets are held by Abu Dhabi Investment Authority