Dubai budget set to spur growth

In the past few months, observers have focused on the UAE, and Dubai in particular, to gauge the impact of the global financial crisis.

This attention is a result of the fact that the UAE has achieved in the past decade a unique development experiment. Dubai's economy has been diversified. Oil now contributes only 5 per cent of the gross domestic product (GDP).

While some were very nervous while waiting to find out the effects of the global financial crisis, Dubai was tackling the repercussions of the crisis with great patience and wisdom.

Amid the swirl of negative and positive exaggerations, the answer came with the release of Dubai's 2009 budget by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

The budget answered many questions and doubts.

Dubai's 2009 budget indicates a 42 per cent rise in government spending which is a huge increase.

If we keep in mind that the growth of all GCC economies is basically based on government pumped money through the annual budget expenditure, we can imagine the investment opportunities that will be available for the business sector through this year's budget.

Furthermore, this development indicates that the emirate's projects announced by the government, especially infrastructure projects, will go ahead this year, which will provide more facilities for the private sector in Dubai.

The increase in government revenues by 26 per cent this year provides another evidence to the success of the emirate's policy to diversify sources of income in the past years.

Despite the recent fall in oil prices, and the downturn in some sectors due to the global meltdown, the revenues of the government sector will continue to rise at a high rate.

Thanks to the diversification policy and infrastructure investment in the past few years, the emirate will reap additional revenues after the completion of some projects such as Dubai Metro, which becomes operational in the fourth quarter of this year.

Although the Dh33.5 billion ($9.1 billion) expected government income in financial year 2009 is Dh4.2 billion ($1.1 billion) short of the expected expenses of Dh37.7 billion ($10.2 billion), this deficit is only 1.5 per cent of the GDP of the emirate.

This rate is within the 3 per cent safety margin of global economies, which is the condition set by the European Union for any member countries to join the single currency. The same condition is applied by the GCC to its member countries.

This marginal deficit can be dealt with easily, considering that the emirate's accumulated budget (government sector plus government affiliated companies) has a surplus of Dh3 billion ($0.8 billion).

The total income of the accumulated budget is Dh138 billion ($37.6 billion), against total expenditure of Dh135 billion ($36.8 billion), which means the surplus equals the deficit in the government sector of Dh3 billion ($0.8 billion).

The budget did not neglect the challenges imposed by the global financial crisis, which have been highlighted in the budget's preface.

There is no doubt that the local economy has been affected by the crisis, just like all other global economies, but the local economy enjoys more flexibility when dealing with these challenges, and the yearly budget of Dubai stands testimony to this flexibility.

There are also directions to widen the scope of transparency and carry out financial reforms, as highlighted in the budget draft.

It seems that the global media started realising this fact when dealing with economic situations in the UAE, as it had lately started to play down earlier fears related to the effects of the global downturn on the UAE economy.

Now that the yearly budget has been officially released, including its important financial and investment aspects, many assessments must be re-evaluated.

The global financial crisis is expected to reach its peak by mid-year, and the world economy will start to recover gradually from the beginning of 2010, when the UAE and Dubai will be able to overcome the repercussions of the crisis with minimum damages, thanks to their developed infrastructure and world-class facilities.

This will happen as the global credit markets, which are currently part of the crisis, start to ease up, since the credit crunch became an obstacle facing the completion of many projects across the world.

This is why the high increase in government expenditure in the 2009 budget is very important. It will contribute to reducing the effects of the credit crunch by mid-year, which will help restore vitality to some economic sectors and activities that suffered from the credit crisis accompanying the global financial crisis.

The 2009 budget sends a strong message to the business community that Dubai and the UAE still have a lot of promising investment opportunities, which if used will raise the living standards of nationals and residents.

It is true that the crisis has reached all and caused all countries huge losses, but it is said that what does not kill you makes you stronger.

Dr Mohammad Al Asoomi is a UAE economic expert.