The UAE government approved its five-year Federal Budget for 2022-2026, with a total expenditure of Dh290 billion, affirming its commitment to the medium-term fiscal framework and multi-year budgeting.
The UAE has been following a three-year budget cycle since 2008 until 2016. Starting 2017, the country adopted a five-year budget (2017-2021) cycle that included annual outlays within the medium-term framework.
The longer term financial planning at the federal level is fully aligned to the longer term strategic vision of the country while addressing the immediate social and welfare needs in the annual budget outlays.
Within the five-year budget framework, the 2022 budget has allocated Dh58.9 billion addressing the socioeconomic requirements of the nation in the next fiscal year.
While the priority has been on social development with 41.2 per cent allocated to this segment, the 2022 budget has undoubtedly laid emphasis on the post-Covid economic recovery by making generous outlays in human resources development, infrastructure, health, flexible business environment and knowledge-based economy. Education at all levels is a clear priority for the government with 26.7 per cent of spending allocated to the sector.
Despite the rising oil prices and large financial buffers, the UAE is pursuing a relatively modest expansionary fiscal stance keeping in mind longer term cyclical and structural factors that could impact the oil revenues.
During the last decade the country made significant progress in adjusting to the ‘lower-for-longer’ oil environment with a host of fiscal reforms ranging from subsidy reforms, introduction of excise taxes and the value added tax.
With a significantly diversified revenue base, the government clearly is in a comfortable position to focus on investments in economic diversification with emphasis on innovation and digitalisation.
It has been amply evident in the last few years that the fiscal vulnerabilities have risen across GCC with the decline in oil prices, calling for measures such as diversification of government revenues and selective spending retrenchment while preparing for unexpected increase in contingent liabilities arising from public sector, government related entities (GREs), public-private partnership investment (PPPs) and a non-oil private sector that relies largely on derived demand from oil sector.
In this context, the balanced medium-term approach to budgeting adopted by the UAE could work as a template for most oil/commodity exporters to address the ups and downs in government revenues from cyclical and structural factors, ranging from a sustained low global economic growth to energy transition affecting demand for fossil fuels.