Spending cuts take some pressure off UAE budget

Deficit falls in third quarter after grant and subsidy trims.

The UAE government spent about Dh78.13bn in the third quarter. Pictured, Abu Dhabi. Christopher Pike / The National
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The UAE is likely to run a smaller fiscal deficit this year than previously projected as spending falls faster than expected.

The UAE ran a fiscal deficit of Dh13 billion in the third quarter, data from the Ministry of Finance showed. That brings the UAE’s fiscal deficit in the first nine months of the year to Dh34bn – or roughly 2.1 per cent of GDP.

The IMF forecasts that the UAE will run a fiscal deficit of 5.5 per cent this year, and a deficit of 4 per cent next year.

To run a deficit that large this year, the UAE would have to run a fiscal deficit of Dh29bn in the fourth quarter.

Spending fell by 21.6 per cent in the three months to September against the same period last year. The UAE government spent about Dh78.13bn in the third quarter.

Subsidies and grants fell by the largest amount, falling 50 per cent against the same period last year, following government moves to reduce subsidies on fuel, water and electricity.

Revenue fell by 31 per cent, to Dh65.2bn as income from hydrocarbons fell dramatically. Revenues from taxes – which includes oil revenue – fell by 60 per cent in the third quarter against the same period last year.

Government finances in the Arabian Gulf have worsened after oil declined to 11-year low of US$35.98 on Tuesday. It was trading at $36.91 late evening UAE time.

The UAE has a break-even price of about US$65 per barrel, according to research from Deutsche Bank.

GCC member states have been weighing new taxes to help them weather the period of low oil prices.

Gulf states are considering introducing a regional value-added tax “within three years”, according to Obaid Al Tayer, the UAE’s Minister of State for Financial Affairs.

The UAE aims to double its tax on tobacco by 2017 and is considering whether to levy a tax on remittances, Mr Al Tayer said.

Oman is also looking at increasing corporation tax in a bid to improve its fiscal situation.

Saudi Arabia is expected to announce spending cuts, major privatisations and an overhaul of its budgeting procedures in its forthcoming budget, which will be announced before the end of year.

abouyamourn@thenational.ae