UAE to cut state spending by 4.2% this year

28/07/2015 05:23 AST

DUBAI: The government of the UAE is expected to cut spending by 4.2 percent this year as it begins to retrench because of low oil prices, which are slashing its energy export revenues, a central bank report said.

The UAE does not regularly reveal consolidated state budget data, and figures released in the quarterly report were the first detailed picture of how authorities in the second biggest Arab economy are responding to cheap oil.

They suggest the UAE is retrenching faster than the majority of Arab oil exporters in the Gulf. The UAE also has huge reserves but it is adopting a more cautious fiscal stance. Consolidated government spending, including the federal government and the UAE’s seven individual emirates, is expected to drop to AED460.6 billion ($125.5 billion) in 2015 from AED480.8 billion in 2014.

This would follow several years in which spending increased at rates of close to 10 percent. The central bank said its projections were based on a study by the International Monetary Fund, which sent a mission to the UAE in May and June.

The projections show the rise in government spending on employee compensation slowing sharply; such spending would increase only 3.4 percent in 2015 to AED48.8 billion. The government expects to save money with big cuts in subsidies, projected to fall 34 percent to AED13.0 billion, and grants, down 48 percent to AED11.3 billion.

Meanwhile, low oil prices are expected to slash consolidated government revenue by 22 percent, leaving a fiscal deficit of AED30.6 billion or 2.4 percent of gross domestic product. It would be the UAE’s first deficit since 2009, the IMF said.

The UAE has been more daring than other Gulf states in pushing through politically sensitive reforms to curb spending and raise new revenue in an era of cheap oil.

Arab News