Dubai approves spending in budget

Dubai Government spending is projected to fall by 6 per cent this year, according to a budget approved by the Ruler of Dubai.

Dubai Government spending is projected to fall by 6 per cent this year, according to a budget approved yesterday by Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai. The spending reduction comes in a year when government revenues are expected to fall due to the financial crisis. Despite the lower spending, Dubai is still expected to post a deficit of about 2 per cent of its GDP this year.

"The deficit is consistent with the financial standards governing the financial policy, which stipulate the deficit should not go beyond 3 per cent of the total GDP of the emirate," said Abdulrahman al Saleh, the director general of Dubai's Department of Finance. "The 2010 budget has a deficit of only 2 per cent." A statement from the official state news agency WAM said the deficit would help spur growth in the harsh financial climate.

In contrast to Dubai, many governments in the Gulf plan to raise government spending during the crisis. The Federal Government said last October it would boost spending by 3.4 per cent this year to try to accelerate the economic recovery. GDP growth in the UAE last year is estimated by the IMF to have fallen to near zero. In Dubai, government revenues are expected to reach Dh29.4 billion (US$8bn) this year, with expenditures projected to reach Dh35.4bn, or 5 per cent less than last year.

Despite the year-end projected deficit, the Government is running a surplus of Dh1.9bn at current spending levels, Mr al Saleh said. He attributed the surplus to a recently announced programme to pull back spending by government departments. Sheikh Mohammed last month issued laws to cut costs as the Government grapples with a debt load estimated at more than $80bn. The law required departments to submit their annual budgets for approval to Dubai's Supreme Fiscal Committee.

"[The surplus] will be the result of the implementation of government spending management programmes, which will be more effective, as well as an increased awareness on behalf of the government officials on how to maximise the use of public money," Mr al Saleh said. Monica Malik, an economist with the Egyptian investment bank EFG-Hermes, said in a note yesterday that spending last year could have been much lower than had been budgeted for.

Ms Malik estimated that actual spending this year would increase by 7 per cent compared with actual spending last year. "We believe that actual spending in 2009 could have been substantially weaker than budgeted, especially given the impact of the global crisis," she wrote. "This includes the slowdown in infrastructure spending as projects were re-evaluated and lower nominal spending on goods (including subsidies) and services as global prices fell."

Dubai's spending plans this year include Dh10.7bn on the completion of infrastructure projects, Mr al Saleh said. The emirate had forecast its first ever deficit for its 2009 budget, at 1.3 per cent of 2007 GDP, or Dh4.2bn. The IMF is on a visit to the UAE to conclude a periodic review of the nation's economic policies for last year. The review is not linked to any borrowing.