The UAE is revamping the way it develops its federal budget, including releasing budgets every three years and adopting a "zero-based budgeting" format, the Ministry of Finance said earlier today. The first three-year budget would run from 2011 to 2013, and the draft would be ready by November this year, the ministry said. Analysts deemed the move as more appropriate to help the country prioritise spending.
The UAE currently releases budgets every year and uses an incremental budgeting process. Each emirate, meanwhile, devises its own budget. "We are moving away from incremental budgeting because incremental budgeting presumes a stable environment where current activities persist at roughly the same cost in future years," the ministry said. "Zero-based budgeting is useful for rapidly growing GDP and (the) need for large-scale infrastructure development."
Last year, the Government said it raised 2009 state expenditure by 21 per cent to Dh42.2 billion (US$11.49bn) in a balanced budget. Like its neighbours in the world's biggest oil-exporting region, growth in the UAE is slowing after a six-year economic boom as it suffers from a slump in oil prices and recession in much of the industrialised world. Ministry undersecretary Younis al-Khouri said individual emirates and ministries contribute to federal revenues, which are "stable, fixed and not dependent on the oil price".
Dubai, facing a property downturn and economic slowdown, said in January it projected a budget deficit this year. "It sounds (like) a much more positive and detailed approach to the budget, but one also needs to see how important the federal budget will be in the future compared to the budgets of individual emirates," said Marios Maratheftis, regional head of research at Standard Chartered. "For an economy like the UAE which is diversifying rapidly, it is important for the Government to be making the necessary spending because the authorities have the financial strength," he added.