Contained fiscal deficit supports higher government spending
Dubai: The UAE has been one of the most proactive in the GCC in fiscal reforms by front-loading most of the fiscal reforms anticipating the impact of lower oil prices on the public finances.
Early adoption of fiscal adjustments and the recent recovery in oil prices are boosting public finances that is expected to support higher government spending next year.
“Much of the project capital expenditure will be implemented by GREs, both in Abu Dhabi and in Dubai, and thus will not be reflected in the consolidated government expenditure data. Nevertheless, we expect to see a pickup in some areas of government spending, supported by a contained fiscal deficit and an improved revenue outlook,” said Monica Malik, Chief Economist of ADCB.
The improved fiscal position is expected to be supported further by the introduction of value added tax (VAT) that is estimated to generate non-oil revenue of about 1.5 per cent of GDP in 2018 ($18 billion) whilst some gradual tightening in the oil market is supporting the oil price and reducing downside risks.
The UAE’s 2018 federal budget suggests a 5.5 per cent increase in expenditure from almost flat levels in 2017. The federal budget accounts for about 14 per cent of consolidated fiscal spending. “We have already seen an expansionary budget from Dubai for 2017, and we expect to see a moderate acceleration in expenditure growth when the budget is released for 2018 at end-December, including capital. In Abu Dhabi, we estimate that any further spending retrenchment will likely be limited given the depth of adjustment so far,” said Malik.