Balancing growth with public welfare

Dubai : His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, yesterday approved the 2010 annual budget for Dubai.

The budget has been formulated in line with the Dubai Government's commitment to pursue a progressive fiscal programme aimed at supporting all sectors of the economy facing challenges in the wake of the global downturn.

The budget estimates that government revenues will reach Dh29.4 billion. The government spending for the same year will reach Dh35.4 billion.

This is a decline in estimated government spending in 2010 as compared to 2009 by nearly six per cent due to the completion of many infrastructure projects.

The budget focuses on the development and completion of the emirate's infrastructure projects. with an estimated government spending on infrastructure of Dh10.7 billion, representing 30 per cent of total government spending.

It is estimated that the operating budget surplus will reach Dh1.9 billion, which is the result of efficient government spending without unbalancing the overall objectives of fiscal policy.

The new budget has been developed with a vision to sustain the exceptional economic growth achieved by the emirate over the past few years.

The budget estimates a deficit of Dh6 billion for 2010, which ensures that the deficit ratio to gross domestic product does not exceed two per cent.

Sector-wise spending

The distribution of government spending on various sectors in the 2010 budget was as follows:

n The estimated spending on the economic sector, infrastructure and transportation that includes the Roads and Transport Authority, Airport Foundation, Dubai Air Wing, municipality and tourism is Dh17.45 billion, which represents 49 per cent of total spending.

n The estimated spending on the social sector and public services that includes health services, education, social development and Islamic affairs is Dh8.10 billion which represents 23 per cent of total government spending.

n The estimated allocation to the security and justice sector, comprising police, nationality and residence, the courts and public prosecution, is Dh6.98 billion, representing 20 per cent of total spending.

The estimated spending on support, transferring and government excellence sector is Dh2.80 billion which represents 8 per cent of total expenditure.

The sectoral distribution of government spending reflects the balanced strategy of the Dubai Government, which focuses on achieving high rates of economic growth and upgrading the welfare of the community members.

This is the reason spending on social sector, public services, security and justice sector accounts for 43 per cent of total government spending.

Lt General Dahi Khalfan Tamim, Chief of Dubai Police and Chairman of the Public Budget committee for the 2010 fiscal year, said that the budget of Dubai Government is based on the Shaikh Mohammad's vision to elevate the level of economic and social prosperity for the people and residents of Dubai.

It takes into account the need to continue developing the emirate's infrastructure, to support the emirate's economy as well as adhering recommendations of the Supreme Committee of Fiscal Policy,

Abdul Rahman Al Saleh, Director-General of the Department of Finance, highlighted the budget's goal to achieve a current surplus of Dh1.9 billion as a result of the application of public spending management programmes on the basis of efficiency, effectiveness and officials in government departments and agencies increasing awareness to work to achieve the optimal use of public funds.

The total government investment spending is estimated at Dh10.7 billion, representing 30 per cent of total government spending for the development and completion of infrastructure projects in accordance with the set plans.

Balance

Al Saleh said that the Dubai Government public budget represents a balance between the necessity to support and stimulate economic activity and commitment to the financial rules and sound principles of public funds management on the other.

The increasing efficiency of government spending without unbalancing the overall objectives of fiscal policy has enabled the budget to envisage a surplus for 2010.

This surplus was achieved despite an increase in the number of workers in the public sector of 3.6 per cent compared to 2009.

The budget reflects the need to work within the fiscal policy framework aimed at elevating economic growth rates by following to the international financial rules.

Focus on infastructure developement

Dubai : The spending plans for Dubai in 2010 will help the emirate boost economic growth while keeping its finances in good shape, economists and businessmen said.

"[Dubai] is trying to maintain the high levels of infrastructure spending because of the direct benefit to the economy," Tudor Allin-Khan, chief economist at HC Securities in Dubai, said. "It is a result of what happened in 2009 and the expected decrease in revenue receipts."

"2009 was about dealing with the problem of the global downturn and that has come to an end," Allin-Khan, said. "2010 will be about returning to growth. I think you'll see stronger economic growth in the UAE as economic activity picks up in Asia, Europe and the US."

Deficit issues

Mohammad Shakeel, UAE economist for the Economist Intelligence Unit, said: "The fact that the deficit is forecast to rise while spending will fall suggests a strong shortfall in revenue.

"Given the drop in tourist, financial services and real estate revenue in recent months, that isn't necessarily a surprise.

"In essence, what the budget reveals, I think, is a realistic recognition of Dubai's economic difficulties over the previous year and a realisation that things will not necessarily improve speedily."

Weaker

Monica Malik, economist at EFG-Hermes, said: "We believe that actual spending in 2009 [was] substantially weaker than budgeted, [because of the] slowdown in infrastructure spending as projects were re-evaluated and lower nominal spending on goods, including subsidies, and services as global prices fell.

"This more modest spending increase is in line with the government's intention of striking a balance between supporting economic growth while achieving healthy management of public funds.

"We agree with the focus of spending remaining on infrastructure, as long as it focuses on removing bottlenecks that will boost economic output as the global economy strengthens."

On the revenue estimates, Malik added: "Revenue estimates in the budget is slightly above our own. With the pickup in the global economy, we are likely to see some increase in revenues from externally facing companies.

"Revenues from government companies are an important source of Dubai's non-tax revenue. However, the continued weakness in the domestic economy will dampen overall revenue growth. With our fiscal and GDP forecasts, we arrive at a slightly higher deficit outcome, equivalent to around four per cent of GDP."

Financials

Paras Shahdadpuri, chairman of the Nikai Group of Companies and president of the Indian Business and Professional Council (IBPC), said: "Monetary and fiscal prudence is of prime importance in running the financials of a city. Thus the budget deficit of Dh6 billion which represents about two per cent of the emirate's GDP should be acceptable.

"During the global downturn, many governments have resorted to very large budget deficits, which can bring in yet another second round of global turmoil."