Abu Dhabi, October 27: The UAE Cabinet, presided by His Highness Shaikh Mohammad bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, approved a record Dh43.6 billion federal budget for 2010, without introducing any new fee, levy, or a long-planned value-added tax.
The public spending outlay under the budget was up 3.4 per cent from 2009, when the state raised expenditure by 21 per cent to Dh42.2 billion to help revive economic growth.
The social sector, including education and health, would receive the biggest share, or 41 per cent of the budget, effective January 1, 2010, the Ministry of Finance said in a briefing in Abu Dhabi. Infrastructure development projects will get 17.5 per cent of the total, while government services would take up about 39 per cent.
Ministry of Finance Under-Secretary, Younis Haji Al Khouri said that despite the global economic slowdown, the budget would be balanced and funded by income from fees, levies and investments, and contributions of Dh17.7 billion from the emirate of Abu Dhabi and Dh1.2 billion from Dubai. The UAE federal budget does not include revenue from the export of oil.
“The social development sector will receive the lion’s share …. reflecting government’s top priority to the development of health, education and social welfare,” he said.
Al Khouri said that the government was still studying the impact of the value added-tax or VAT, of between 2 and 5 per cent, originally planned to be introduced in late 2008 but has since been put on hold due to the global financial crisis.
“It (VAT) may be a contentious issue. While its introduction may ultimately diversify the revenue source, the timing may not be appropriate given the harsh financial environment,” said M.R. Rughu, Senior Vice President Research at Kuwait Financial Centre, or Markaz.
Growth in the UAE, like its neighbouring oil-exporters, has suffered as the global recession cut the flow of investments and oil prices plunged from a high of near $150 a barrel in the summer of last year. The seven emirates, including Abu Dhabi and Dubai, also have separate local budgets, and analysts believed their spending might provide additional stimulus to the overall economy next year.
Tristan Cooper, chief analyst for Middle East Sovereigns at Moody’s Investor Service, said a small increase in the budget size probably reflected the government’s opinion that the incipient recovery of the private sector would allow it to ease back on fiscal stimulus next year.
He said that federal spending accounts for less than a fifth of consolidated public expenditure in the UAE, so the overall fiscal outlook depends more on what individual emirates plan to do in 2010.
“It is positive to see that expenditure will continue to rise as the global economic recovery is fragile. However, when it comes to the economic implications, the budgets of individual emirates such as Dubai and Abu Dhabi will play a much more important role,” said Marios Maratheftis, head of research at Standard Chartered Bank.
Monica Malik, senior economist at EFG-Hermes Investment bank in Dubai, said that the overall spending of the individual emirates would remain strong at 18 per cent.
Al Khouri did not offer any comment on inflation and GDP targets for the next year.
He said prominent among infrastructure projects would be the construction of 40,000 houses under the Zayed Housing Programme for UAE nationals. The focus in the health sector would be on setting up new hospitals, creating health awareness, developing a network of health information systems, he said.
–Agencies