Dubai: The Abu Dhabi government could record a fiscal surplus this year at oil prices around $50/bbl (Dh183.50) according to forecasts by Bank of America Merrill Lynch.

“The 2017 budget does not include the impact of Opec-mandated cuts but is based on an oil price assumption of $50/bbl [versus $40/bbl in 2016]. The central government now receives a portion of Abu Dhabi Investment Authority’s (Adia) investment income. This helped narrow the financing gap,” said Jean-Michel Saliba, Mena Economist of Bank of America Merrill Lynch.

According to economists, efforts to obtain greater dividends from government related entities (GREs) are continuing, as dividends from Adia, Abu Dhabi National Oil Company (Adnoc), Abu Dhabi Securities Exchange (ADX), and for the first time, from Abu Dhabi Investment Council (Adic) and Abu Dhabi Water and Electricity Auguthority (ADWEA), were up-streamed to the sovereign.

Focus on fiscal discipline and revenue augmentation seem to be paying off in terms of improved fiscal balance. According to a recent Bank of America Merrill Lynch report, the 2015 Abu Dhabi fiscal deficit was revised down from Dh32 billion ($8.7 billion or 4.1 per cent of GDP) to Dh18 billion (2.3 per cent of GDP). The 2016 deficit appears to have stood at Dh29.1 billion (4 per cent of GDP), with spending reaching Dh287.9 billion and revenues reaching Dh258.9 billion. The deficit was narrower than the Dh36.9 billion budgeted as revenue outperformance more than offset overspending.

Major projects

The 2017 Abu Dhabi budget assumes a surplus of Dh15 billion ($4.1 billion; 1.9 per cent of GDP) on revenue projections of Dh285 billion (up 10 per cent versus 2016 out-turn) and spending targets of Dh270 billion (down 6.2 per cent versus 2016). “Further hikes to administered utility and energy prices (electricity, water and gas) are planned this year. The approaching completion of major infrastructure projects (airport, in particular) should help keep a lid on capex spending as it peaks over 2017-18,” said Saliba

Over the next five years to 2022, Abu Dhabi authorities are planning to anchor spending at a flat level of Dh250bn, down 7.4 per cent versus 2017 budget and target increasing revenues including some investment income from Adia, through the passage of a VAT, crude oil production increases and oil stabilising at $50/bbl.

According to BoA Merrill Lynch, Abu Dhabi authorities do not plan to return to international markets over the coming years. Issuance of domestic debt could take place this year, although the goal would be more for purposes of building a domestic yield curve than for financing. Dh10 billion is planned for issuance annually over 2017 and 2018.

Oil production outlook for 2018 remains modest as the current output deal has already been extended until the first quarter of 2018. Analysts expect the risk of lower production lingering further in 2018 and moderating the GDP growth to about 2.5 per cent.