The UAE is expecting not only its fiscal revenue to fall by 22.4% this year but also a reduction in the revenues of every Emirate government, according to the latest quarterly economic bulletin on the Central Bank of UAE. Other revenues from commercial taxes, and royalties on oil and natural gas, are anticipated to fall by some 33.4% this year.
In response to the decline in revenues, the UAE central bank is projecting a decline of 4.2% in the government’s spending by Dh20 billion this year compared to last.
According to some central bank estimates, the UAE’s consolidated budget is projected to turn into deficit this year reaching 2.4% of GDP and subsidies are projected to decline by 34.3% this year with local government grants seen to be declining by 50.4%.
Much earlier, the International Monetary Fund and the World Bank have been urging the UAE together with other GCC oil exporters to diversify their revenue sources and reduce subsidies to deal with oil market unpredictability.
Lately, the IMF in its regional economic outlook, said that certain financial buffering measures would help moderate the dreaded impact of sharp cuts in government expenditure, urging all oil exporters to reduce spending and “prudently treat the oil price decline as largely permanent.”
Masood Ahmed, the IMF’s regional director was heard saying that “GCC countries have sizeable buffers — most of them can finance substantial deficits for four to five years.”
“But will they want to use buffers not only to deal with the shift in oil prices but also to continue running large deficits?” he wondered. “That’s why adjusting medium-term spending in light of new realities becomes relevant.”
The UAE’s recent decision to deregulate the fuel prices is seen as a move that could bring in the process of spending cut as naturally as it were as it is possible, but given the large surpluses the government and some of the sovereign wealth funds control, economists say the UAE has ample room to introduce fiscal reforms in a gradual manner without impacting cost of living and competitiveness of the country. However, with progressive cuts in fuel and energy subsidies and a potential introduction of a value-added taxes, the UAE is seen speeding up the process of revenue diversification and fiscal retrenchment ahead of its GCC counterparts.
Actually the GCC countries’ oil export earnings are expected to fall by $300bn, or one-fifth of their overall economy, when compared to the IMF’s previous projections in October. The IMF says those worst affected will be Kuwait, Qatar, Iraq, Oman, Libya, and Saudi Arabia. On the other hand, the Gulf States will sell up to $200bn of assets over the coming year in order to plug their financial widening gaps. Saudi Arabia has lately sold some $25bn of currency reserves since December, data showed.
“Only Kuwait and Qatar are projected to avoid a budget deficit this year,” Ahmed said. “Every other oil exporting country is spending more than its income.”