The recent 2022 budgets for the UAE and Dubai – by Sharjah and Ajman too - made the headlines. True, budgets and economic data can make for somewhat dreary reading and many readers tend to deal with them rather summarily.
However, all professionally managed firms ought to study the relevant budgets, especially as regards the significant sources of leading economic indicators. Only then can businessmen and professionals credibly craft strategic and operating plans.
Let us focus first on UAE’s budget for the year - and, in aggregate, for the next five years - amounting to Dh58.93 billion and Dh290 billion (2022-26). Certainly, this is the largest spending budget in the UAE’s 50-year history.
The UAE’s federal budget process commenced in 1971 and this year, the budget size has increased by some 300 times. The largest share of 41.2 per cent of UAE's 2022 budget has been allocated to the development and social benefits sectors. In the main, at the Federal level, the UAE will spend:
• 16.3 per cent on education;
• 6.1 per cent on social development;
• 8.4 per cent on health;
• 8.2 per cent on pensions;
• 3.8 per cent on infrastructure; and .
• 2.6 per cent on other services.
Hearteningly, the UAE budgets do not project any deficit for the three consecutive years. UAE's fiscal plans are noteworthy as they envisage a "tax system” comprising corporate tax, tobacco tax, VAT, as well as fees collected through federal government services.
These are important aspects to assess what impactful taxation measures may be on the anvil, considering that the G8 advocated last year for a universal minimum of 15 per cent corporate tax. More than the Federal budget, it is necessary to carefully analyse the respective emirate’s budgets in the UAE. Market practitioners can thereby identify the main growth and momentum drivers.
I recall vividly that the holding of the IMF & World Bank meetings in Dubai in 2003. It proved to be a watershed moment as the Dubai Government launched its commemorative maiden bond issue. In the preparatory run up to the issuance and documentation, I was leading the then Emirates Bank’s team and was privy to sensitive fiscal and economic disclosures being made by the Government for the first time.
Setting down the markers
Similar was the situation when Emirates airline launched its first bond issue. Such market- friendly initiatives and data disclosures did give enormous confidence to the private sector, many of whom felt encouraged in their foray into regional and global debt markets. Realisation had quickly dawned that they cannot nurture global growth aspirations while staying shrouded in cosy “name- lending” by the domestic banking sector. Much water has flown under the Al Maktoum Bridge since!
Dubai’s Department of Finance (DoF) is now implementing the International Public Sector Accounting Standards (IPSAS); conforming to global best practices. Adopting such disciplined financial policies, the DoF has managed to generate a 3 per cent operating surplus of Dh1.8 billion in the 2022 budget. Projected government revenues for 2022 is Dh57.55 billionm which equates to a 10 per cent increase over the 2021 budget.
Tax revenues account for 31 per cent and non-tax revenues contribute 57 per cent, while Government's investment revenues are estimated at 6 per cent. Last year, Dubai had announced several economic stimulus measures, and had put a freeze on fee increases until 2023 even as it reduced some government fees for relief to businesses.
Dubai’s economy is now so well-diversified that oil revenues account for barely 6 per cent of the budget. For the three fiscal years 2022-24, Dubai’s aggregate expenditure is envisaged at Dh181 billion. For 2022 alone, the spend is Dh57.1 billion, almost matching the quantum of the federal budget.
Razor focus on infrastructure
Hosting of the Expo 2020 did warrant a significant ‘spend' in the last few years. Infra-focus continues in this year's budget with the largest component (42 per cent) of the total expenditure being on infrastructure and transportation. A generous Government spend of 30 per cent of the total is planned for social development sectors such as health, education, housing and women- and childcare.
Dubai is globally applauded for maintaining domestic peace and tranquillity over decades. Rightly therefore, 23 per cent allocation of the total expenditure is towards "security, justice and safety”. Interestingly, 5 per cent of the budget is earmarked to enhance government excellence, creativity, innovation and scientific research, so as to retain a culture of performance and excellence.
The Government remains supportive of entrepreneurship and intends to create a sustained environment conducive for incubating micro-ventures. This is a good cue for the private sector to align their own investment plans. It is nobly noteworthy that for the first time there are allocations for developing "reading and coding initiatives" and for supporting athletes among people of determination. Another articulated article of faith is to continue enhancing the private sector's role across the economy.
Institutional investors and infrastructure businesses will thus welcome the activation of Dubai's Public-Private Partnership Law and the development of project financing mechanisms through long-term financing. In this context, Dubai should soon take up initiatives to develop its own domestic long-term bond market and suitably encourage its banks, insurance companies and pension funds to act as ‘market makers’.