Dubai 2009 Budget Spending Intended To Stimulate The Economy

Dubai, the UAE’s second largest emirate, announced on 11 January in a decree issued by its ruler Shaikh Muhammad bin Rashid Al Maktum, a record consolidated 2009 budget with total revenue up 2.2% at Dh138bn ($37.6bn), total expenditure up 9.2% at Dh135bn ($36.8bn), and an operational surplus of Dh3bn ($817mn), compared to a larger surplus of Dh11.4bn ($3.1bn) in 2008. According to a Dubai Department of Finance statement, “the budget has been formulated in line with the commitment of the government of Dubai to pursue a progressive fiscal program aimed at supporting all sectors of the economy, facing challenges in the wake of global financial constraints.” The statement adds that the new budget was drawn up with a vision to sustain the exceptional economic growth achieved by the emirate over the past few years. Underlining the continuity of the growth process, the director of Dubai Municipality Husain Lutah said that projects under implementation, due to be completed in 2009, will not be delayed and that planned projects will be awarded on schedule.

Shaikh Muhammad was quoted in the statement as saying “we are confident that the strategy we adopted will prove to be highly successful, while providing an essential economic stimulus that will enable businesses to weather the short-term challenges to performance and capitalize on the opportunities that will open up once the global economic recovery begins.” The head of the Dubai Department of Finance Nasir bin Hasan al-Shaikh has said that the budget for the public and services sector is aimed at conserving the dynamic economic growth Dubai has witnessed in the past few years and noted that it reflects the emirate’s commitment to press ahead with progressive and growth-oriented policies in the wake of the short-term constraints in the global economy. Mr Shaikh disclosed that due to the current credit crunch, Dubai will suspend the issue of a second tranche of bonds to finance infrastructure projects. The first tranche of Dh6.5bn ($1.8bn) of a total planned issue of Dh15bn ($4.1bn) was floated in April 2008. Growth projection for Dubai in 2009 was lowered to 4-6% from an earlier estimate of 11% before the world financial crisis.

Dubai has adopted a confident tone on revealing its budget, in step with many other Gulf governments, but it faces considerable challenges. Real estate sector growth, which has fueled much of its economic expansion, is slowing, and stocks remain under pressure after the benchmark index tumbled 68% last year. Dubai is saddled with heavy debt, which has been used for its unprecedented growth. Late last year officials said that debt for sovereign and related companies was $10bn and $70bn respectively, and while this is manageable, given government assets of around $90bn and company assets of $260bn, the lack of transparency makes it difficult to assess liquidity. This had increased the likelihood of a wealth transfer from oil-rich Abu Dhabi to Dubai, and MEES understands that Dubai was set to receive $50bn in 2008 and $150bn in 2009, although there is little official detail (MEES, 1 December 2008). Given the currently challenging economic conditions, some are surprised that Dubai is predicting that 2009 revenue will climb from 2008’s levels. “This will be difficult to achieve for Dubai in light of reduced oil, aluminum and real estate prices,” commented Eckart Woertz, Program Manager Economics at the Gulf Research Center.

Budget Separates Public And Commercial Income

The consolidated budget for the first time separates the Dubai government’s public sector income and expenditure from its commercial entities. Expected revenue from the public sector for 2009 is projected at Dh33.5bn ($9.1bn), up 26% on the reported figure of Dh26.5bn ($7.2bn) for 2008, while expenditure is projected at Dh37.7bn ($10.3bn), up 42% over the figure of Dh26.5bn ($7.2bn) the previous year. As a result a fiscal deficit of Dh4.2bn ($1.1bn) is projected in 2009, which is not expected to exceed 1.4% of Dubai’s gross domestic product, estimated at Dh301bn ($81.9bn). The oil price assumption in the budget is set at $45/B. The expansion in expenditure is allocated to all sectors of the economy, especially for the social, infrastructure and transportation sectors. The statement also says that the operational budget surplus for 2009 is expected to reach Dh3bn ($817mn), on the basis of an operational revenue of Dh28.7bn ($7.8bn) and operational expenses of Dh25.7bn ($7.0bn). On the revenue side the budget will not raise any new government fees or taxes. Public and administrative spending in 2009 is expected to rise to Dh22.9bn ($6.2bn) from Dh15.9bn ($4.3bn) in 2008, representing 61% of total government expenditure. It adds that capital expenditure in 2009 will rise 71% to Dh2.9bn ($790mn) from Dh1.7bn ($463mn) and that projected investment in infrastructure will rise 33% to Dh12bn ($3.3bn) from Dh9bn ($2.5bn) in 2008.

According to the statement, detailed allocations under the new budget are as follows:

Dh8.325bn ($2.3bn), or 22% of the total, for the social sector, which includes health, services, education, social development, Islamic affairs and public housing.
Dh7.055bn ($1.9bn), or 19%, for the judiciary and security sectors, which include the police, immigration and naturalization, courts and public prosecution.
Dh17.054bn ($4.6bn), or 45%, for the Roads and Transport Authority, Dubai Municipality projects and the Ports Authority.
Dh5.311bn ($1.4bn), or 14%, for the economic and services sector, which covers development, land, tourism, emergency aid, civil aviation and the oil sector.

Dubai Budget: 2006-09 (DhBn)