Abu Dhabi’s fiscal deficit will widen significantly in 2016, as oil prices remain lower for longer, according to Moody’s the ratings agency.
The emirate will run a fiscal deficit of 14 per cent of GDP this year, the ratings agency expects. Fitch estimates that Abu Dhabi ran a fiscal deficit of 13.2 per cent in 2015.
Major falls in oil and natural gas revenues are driving the deficits, with receipts falling from 26.6 per cent of GDP to 17 per cent of GDP from 2015. Oil revenues are expected to fall by about 41 per cent this year from their 2014 high, Fitch expects.
Abu Dhabi has a breakeven oil price of $60 per barrel, which Moody’s describes as “low compared to most GCC peers, but still above the market price that is likely to prevail until at least 2018.”
Oil scraped a 12-year low below $30 per barrel in January this year, as OpecC member states produced 33.1 million barrels of oil per day, a historic record. Russia and Saudi Arabia agreed to freeze production at January levels at a meeting this week, but analysts expect this to have a limited impact on the oil price.
Abu Dhabi is the largest contributor to the federal budget. Oil sector activity accounts for half of all economic activity in the emirate.
Abu Dhabi has a longstanding arrangement with the Abu Dhabi Investment Authority (Adia), the state-owned sovereign wealth fund with more than $600 billion in assets under management, which allows it to withdraw funds to pay down its deficit in extraordinary circumstances.
The UAE aims to approve a federal debt law and issue new foreign debt next year, a government minister said last week.
Growth in the emirate will slow to 3.1 per cent this year, down from 3.4 per cent last year, Moody’s estimates.
The UAE will be able to finance its deficit by drawing down on assets for “at least five to ten years”, Moody’s said.
While Abu Dhabi manages sovereign wealth equivalent to around 400 per cent of its GDP – enough to last the emirate 23 years, at current spending levels – liquidating assets hurts sovereign wealth funds’ ability to earn income from investing abroad. Adia has a large portfolio of foreign investments, which earned a 7.4 per cent annualised rate of return over the 20 years to 2014, it said in an annual report.
Both the UAE and Abu Dhabi have very low levels of debt. Abu Dhabi has outstanding debt equivalent to around 4 per cent of GDP, Moody’s said, giving the emirate considerable space to issue new debt.
abouyamourn@thenational.ae
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The Breadwinner
Director: Nora Twomey
Starring: Saara Chaudry, Soma Chhaya, Laara Sadiq
Three stars
Company profile
Name: Thndr
Started: October 2020
Founders: Ahmad Hammouda and Seif Amr
Based: Cairo, Egypt
Sector: FinTech
Initial investment: pre-seed of $800,000
Funding stage: series A; $20 million
Investors: Tiger Global, Beco Capital, Prosus Ventures, Y Combinator, Global Ventures, Abdul Latif Jameel, Endure Capital, 4DX Ventures, Plus VC, Rabacap and MSA Capital
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
KILLING OF QASSEM SULEIMANI
Fund-raising tips for start-ups
Develop an innovative business concept
Have the ability to differentiate yourself from competitors
Put in place a business continuity plan after Covid-19
Prepare for the worst-case scenario (further lockdowns, long wait for a vaccine, etc.)
Have enough cash to stay afloat for the next 12 to 18 months
Be creative and innovative to reduce expenses
Be prepared to use Covid-19 as an opportunity for your business
* Tips from Jassim Al Marzooqi and Walid Hanna
THE SIXTH SENSE
Starring: Bruce Willis, Toni Collette, Hayley Joel Osment
Director: M. Night Shyamalan
Rating: 5/5
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
