UAE reports Dh67.5bn surplus for 2018 thanks to higher oil prices

Consolidated government revenues last year climbed to Dh455.5bn

Burj Khalifa in Dubai lit up with the UAE flag. The country's banking regulator cut key interest rates following the Fed's move. Leslie Pableo / The National

The UAE, the second-largest Arabian Gulf economy, reported a surplus of Dh67.5 billion last year as a rise in crude prices in the second half of 2018 boosted government revenues.

The consolidated revenues of the federal government rose to Dh455.5bn while its expenses climbed to Dh388.15bn at the end of last year, the state-run news agency Wam reported, citing UAE Ministry of Finance data. The comparative figures from a year earlier were not given.

The government’s revenues during the first nine months of 2018 rose to Dh304.5bn, a 4.8 per cent year-on-year increase. The expenses also climbed to Dh276.2bn from Dh259.3bn from the corresponding period in 2017.

The ministry attributed the rise in consolidated revenues to the oil rally in 2018, along with consistent financial reforms.

The UAE economy grew 4.4 per cent in the last quarter of 2018, the fastest-growing quarter of last year, thanks to a rise in crude oil production before the implementation of Opec cuts, which started in January. Overall growth in 2018 was 2.8 per cent, up from 0.8 per cent in 2017.

The economy is forecast to grow 3.5 per cent this year on the back of a slew of government measures aimed at boosting economic growth and cutting its dependence on oil revenues, the Central Bank of the UAE said earlier this month. The growth projection for this year is almost in line with that of the International Monetary Fund, which forecasts 3.7 per cent expansion during 2019-20.

Like the rest of its GCC peers, the UAE relies on the sale of hydrocarbons for revenues and the three-year oil price slump which began in the middle of 2014 prompted the government to develop alternative streams of income, boosting the contribution of the non-oil economy to GDP.

"Is the UAE economy sensitive to oil income? [Yes] oil is one of the factors that drive the UAE economy,"  Mazen Alsudairi, head of research at Al Rajhi Capital in Riyadh, said. "Irrespective of this, the UAE is working towards its future strategy based on UAE Vision 2021 and they are sticking to their [expansionary] targets, which is expected to be positive for the economy."

Brent crude prices rose to breach the $85 per barrel level last October, after falling to lows of below $30 per barrel in the first quarter of 2016. The benchmark, against which more than half of the world's crude oil is priced, is currently hovering around the mid-$60s level.

The reforms and measures that the government at the federal and emirate levels has adopted include the implementation of VAT at the beginning of last year and the reduction of the cost of doing business. These also include the waiving of corporate fines in Dubai and Abu Dhabi, allowing foreign ownership of companies in selected sectors outside free zones, and Abu Dhabi's Dh50bn three-year economic stimulus package revealed last year.

"The UAE’s consolidated fiscal position in 2018 would have benefited from the higher oil revenue and the introduction of VAT," said Monica Malik, the head of research at Abu Dhabi Commercial Bank.

The government has also shifted its focus to supporting economic activity, including reducing government fees in a number of areas and raising government spending.

"The UAE is in a position to support these growth measures, especially given the progress with its fiscal reform programme," Ms Malik added.