Abu Dhabi to ease budget spending cuts, says ratings agency Moody’s

Fitch estimates that the Abu Dhabi government sold about $27 billion of sovereign wealth fund assets to help it finance its deficit in 2015. Christopher Pike / The National

Abu Dhabi will slow the pace of spending cuts in its 2016 budget, ratings agency Moody’s expects.

“We expect Abu Dhabi government’s fiscal consolidation effort to slow because of the need to balance the two objectives of supporting growth and curbing the budget deficit,” said Math­ias Angonin, a Dubai-based sovereign analyst at Moody’s. “We [expect] that in 2016 there will be a lower decrease in spending that the 20 per cent achieved in 2015.”

The emirate cut public spending by about 20 per cent in 2015 after the hit to oil prices led Abu Dhabi to run a fiscal deficit of 13.2 per cent of GDP that year, according to estimates from Fitch. Moody’s expects that the deficit will narrow to 9 per cent of GDP this year.

Ministry of Finance figures show that the UAE government, nationally and at the emirate level, cut public spending by 27 per cent in the year up to September 2015, the most recent period for which data is avail­able. Abu Dhabi does not release details of its annual spending.

The government “cut back a bit on public investment in 2015, [but] we hope they won’t do that in the future,” Zeine Zeidane, IMF mission chief to the UAE, told The National last week, when he called on the UAE to “continue to rationalise [its] spending”.

The UAE continues to rely on oil for two-thirds of government revenues, according to IMF data. The collapse in oil prices that began in June 2015 has led the government to spend more than it earns from the sale of oil for the past two years. The IMF expects the UAE to continue to run budget deficits until at least 2020.

Fitch estimates that the Abu Dhabi government sold about $27 billion of sovereign wealth fund assets to help it finance its deficit in 2015. It can finance its deficit by drawing down on the assets of the Abu Dhabi Investment Authority, the sovereign wealth fund that manages between $475bn and $773bn in assets, according to different estimates.

“Abu Dhabi is probably one of the best placed economies in the Gulf to cope with low oil prices,” said Jason Tuvey, an emerging markets economist at Capital Economics. “They’ve got enormous savings in their sovereign wealth funds and debt levels are low, so they can afford to prolong the adjustment for an extended period of time.” Abu Dhabi sovereign wealth funds hold assets under management equivalent to between three and four times the annual economic output of the emirate.

“They cut public spending by an awful lot last year – but, especially in the Gulf, there’s always low-hanging fruit to cut,” he said.

“The economy is still very dependent on public spending, so it is in for a period of weaker growth over the coming years.”

The IMF expects the UAE will grow by 2.3 per cent this year, its slowest growth rate since 2011. Most of that growth will come from Dubai, where the economy is set to expand by 3.3 per cent this year.

Ali Majed Al Mansouri, chairman of the Abu Dhabi Department of Economic Development, said that the emirate’s 2016 budget would be “stronger and greater” than its 2015 budget, Aletihad, The National’s Arabic-language sister news­paper, reported.

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