DUBAI: The United Arab Emirates is succeeding in strengthening its state finances by restraining spending, and managed last year to reduce the oil price which it needs to balance its budget, the International Monetary Fund said yesterday.
But the possibility of another boom-and-bust cycle in Dubai is a risk for the UAE economy in the medium term, the IMF warned after the emirate announced a string of huge real estate development projects.
The IMF’s report, released after annual consultations with the UAE, indicated the country is doing more than other Gulf Arab oil exporters to rein in growth of government spending and reduce its vulnerability to any steep fall of the oil price.
Hit by the global financial slump, Gulf Arab countries boosted spending sharply from 2009, and increased it further in the wake of the Arab Spring uprisings of 2011. The higher spending has succeeded in keeping economies growing, but means state budgets could fall into deficit if oil prices slide.
The UAE began curbing its spending last year, more than doubling its total fiscal surplus — the combined surplus of the federal government and all of the UAE’s seven emirates — to 8.8 percent of gross domestic product from 4.1 percent in 2011, the IMF calculated.
This lowered the oil price which the UAE needs to balance its combined budget to $74 per barrel last year from $84 in 2011, the IMF said. Brent crude oil is now around $103. By contrast, other Gulf Arab countries continued to increase state spending substantially last year and their budget break-even prices have been rising.
The IMF said it welcomed the UAE’s plans to continue consolidating its finances: “For 2013, continued fiscal consolidation of around 2 percent of non-oil GDP is planned. “Fiscal consolidation is expected to be driven by a rationalisation of capital spending and subsidies and transfers, while spending on goods and services, defence and security, and the wage bill are expected to increase.”
The UAE’s finances are difficult to analyse because Abu Dhabi, which accounts for roughly 80 percent of the country’s fiscal spending, does not publicly release details of its annual budgets and outcomes.
In October, the federal finance ministry published 2011 consolidated fiscal data, releasing such information for the first time ever, but there has been no update on 2012 so far. Because of lower oil prices, the IMF predicted the UAE’s fiscal surplus would shrink to 8.1 percent of GDP this year, before narrowing gradually to 5.1 percent in 2018.
Despite its approval of the UAE’s overall policy direction, the IMF warned of risks in Dubai, which suffered a crippling corporate debt crisis in 2009 but is now recovering strongly on the back of rebounding real estate prices.
Reuters
