A sharp cut in actual spending and an increase in revenue turned a projected high deficit in the UAE's 2003 federal budget into a surplus by the end of the year.

The government had forecast a federal budget gap of around Dh2.219 billion ($604 million) when it announced the state budget in May last year.

Spending was put at around Dh23.29 billion ($6.35 billion) and revenue at nearly Dh21.07 billion ($5.74 billion), according to official figures.

But the forecast deficit turned into a surplus of around Dh140 million ($38.1 million) by the end of the year, the International Monetary Fund said in a report.

Citing figures by the UAE ministry of finance and industry, the IMF said the deficit was wiped out after actual expenditure was slashed to around Dh21.55 billion ($5.87 billion) and revenues increased to nearly Dh21.69 billion ($5.91 billion).

Spending cuts covered most expenditure sectors, including current spending, goods and services, allocations for most ministries and development expenditure.

But economists said lower expenditure had not affected development projects since each emirate allocates funds for development from their own budgets.

"Lower or higher development spending in the federal budget does not reflect the real situation," an Abu Dhabi-based economic expert said. "What is more important is the consolidated accounts, which include federal spending and budgets of the emirates."

The IMF figures showed current expenditure was trimmed to around Dh20.77 billion ($5.67 billion) from Dh21.88 billion ($5.96 billion).

The cuts covered most sectors in that category, including wages and salaries, payments on goods and services for the federal government, ministry allocations, subsidies and transfers and foreign grants.

While budget contributions from the two main oil producing emirates of Abu Dhabi and Dubai declined last year, total revenues swelled to around Dh21.69 billion ($5.91 billion) mainly due to an increase in federal revenues and government fees and charges.

The main cut in those contributions was from Abu Dhabi as grants from Dubai remained unchanged at Dh1.2 billion ($326.9 million) last year. Abu Dhabi's grants dropped to Dh11.85 billion ($3.22 billion) from forecast Dh12.48 billion ($3.40 billion).

The UAE's federal fiscal situation has remained strong over the past two decades, recording surpluses in some years and tiny deficits in others.

In 2002, a similar deficit was turned into a surplus of around Dh108 million ($29.4 million) while a forecast shortfall of nearly Dh2.3 billion ($626 million) in 2001 was slashed to only Dh36 million ($9.8 million).

The gap is far higher in the consolidated financial account but it has remained under control as it has been financed through return from the country's massive overseas assets.

As a result, the UAE has not resorted to domestic borrowing or imposing income taxes, opting instead to introducing more fees on government services.