UAE's spending set to cross Dh100b

The UAE will likely jump over the Dh100 billion mark in its public spending this year for the first time in its fiscal history but the widening deficit will be easily shored up through its massive overseas assets, according to an official Arab report.

The consolidated financial account (CFA), which covers the federal budget and local spending by each emirate, is projected to climb to a record Dh105.9 billion ($28.8 billion) this year, an increase of around five per cent over last year's expenditure, showed the report by the Abu Dhabi-based Arab Monetary Fund (AMF).

Revenues are also expected to grow by around 5.5 per cent to Dh69.2 billion ($18.8 billion) and most of the increase will come from higher oil and gas sales.

Higher spending will result in a record budget gap of around Dh36.7 billion ($10 billion), nearly 13 per cent of the gross domestic product, the AMF said in its quarterly report on the stock markets and econo-mies of most Arab countries.

"The budget will be financed again through returns from the country's overseas investments of more than $200 billion and, to a lesser extent, through domestic bank borrowing to take advantage of low interest rates," it said.

The UAE's highest CFA deficit was recorded in 1999, when it stood at Dh29.5 billion ($8.03 billion) as a result of a surge in expenditure, mainly current spending.

But more than 95 per cent of the shortfall was covered from return on overseas investments while the rest was raised through domestic borrowing.

The UAE has not yet published figures on the consolidated account for last year and this year while in 2001 spending peaked at around Dh93.7 billion ($25.5 billion) and revenues were put at Dh67.9 billion ($18.5 billion), leaving a deficit of $7 billion.

Current spending consumes more than two thirds of the UAE's total expenditure, covering mainly salaries for the civil servants and public purchases. The rest includes spending on development, subsidies and transfers, and loans and equity.

AMF estimates put the UAE's exports last year at around $44.9 billion and imports at $30.8 billion, creating a trade surplus of $14.1 billion. There was also a surplus of around $8.7 billion in the current account, a vital economic indicator that involves the balance between exports, imports, investment return and financial transfers.

It said the country's GDP grew by around 2.4 per cent in real terms last year and high public expenditure will ally with private investments this year to stimulate growth to around 4.3 per cent. Non-oil sectors alone will grow by nearly 5.4 per cent in 2003.

Inflation was estimated at 2.8 per cent last year, higher than the expected 1.3 per cent. It is projected at around 2.5 per cent this year.

"The exact level of inflation through the year will be influenced by the current developments in the region," the report said.