State deposits with banks up by Dh21bn

(REUTERS)

Government deposits with local banks swelled by Dh21 billion to one of its highest levels at the end of 2007, indicating the country basked in a record budget surplus because of high oil prices, bankers said yesterday.

From Dh93.6bn at the end of 2006, the government's deposits soared to Dh114.5bn at the end of 2007, according to the UAE Central Bank.

The deposits had jumped by nearly Dh14bn during 2006, when the UAE's consolidated financial account (CFA) recorded its highest ever surplus of around Dh72.4bn despite a sharp rise in expenditure.

In previous years, the government had either cut the deposits or they recorded slight rises when CFA ended the year in small surplus or a deficit.

Bankers said this is normal considering the fact the UAE finances budget deficits through its bank deposits and returns from overseas investments rather than from borrowing as is the case in Saudi Arabia.

"It has been noticed that when government deposits with banks recorded a large increase, this was accompanied by a sharp increase in the country's oil export earnings," an Abu Dhabi-based bank manager said.

"In the absence of other tools to finance any deficit apart from investment return and official deposits, the sharp growth in deposits last year clearly indicates the fiscal surplus exceeded the 2006 record balance."

Central Bank statistics on the CFA, which reflects the UAE's real fiscal position as it covers the federal budget and spending by each emirate, showed the actual balance at the end of each year has been shored up through withdrawal from government bank deposits and from overseas assets, which are believed to be in excess of $875bn (Dh3.2 trillion).

In case of a surplus, part of the extra funds is allocated for deposits and the rest to support those assets, most of which are controlled by the government-owned Abu Dhabi Investment Authority (Adia), ranked last year as the world's largest sovereign wealth in terms of assets.

Bankers said both the government deposits and assets abroad had steadily grown over the past three years because of a huge fiscal surplus created by a surge in the UAE's petrodollar income.

After reeling under large deficits in early 2000s and 1990s, the CFA recorded a massive surplus of Dh39.4bn in 2005 and Dh72.4bn in 2006. With last year's surplus expected to climb to a peak, the cumulative surplus could exceed Dh185bn in the past three years. The Central Bank has not yet issued 2007 budget figures but is expected to do so in mid-2008.

"Judging from the high economic growth rates recorded last year and the surge in public projects, the UAE again overshot spending," a banker said.

"Yet I believe the surplus was very high last year as the UAE's income was much higher in 2007 than in 2006 for two reasons: average crude prices were higher by $10 and the country's production was also higher."

According to the Emirates Industrial Bank, the UAE earned a record Dh246bn from oil sales last year compared with Dh223bn in 2006. The surge along with high growth in other sectors pushed the UAE's gross domestic product by 17.3 per cent to a record Dh703bn in current prices last year from Dh599bn in 2006.

The non-oil sector leaped by 21.5 per cent to Dh457bn from Dh376bn.
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