x Abu Dhabi, UAEThursday 27 July 2017

IMF to advise on public spending policy

The IMF is to advise the UAE on public spending to ensure future generations enjoy the full benefits of the country's wealth.

The IMF is to advise the UAE on public spending to ensure future generations enjoy the full benefits of the country's wealth.

Officials from the IMF will help to better link up the budgets of the seven emirates and the federation, said Harald Finger, the IMF mission chief to the UAE.

"An IMF technical assistance mission is scheduled to support the UAE’s Fiscal Coordination Council (FCC) in broadening the scope of its work toward an effective coordination of fiscal policy plans," he said yesterday after the IMF released a report following a recent mission to the country.

At the moment, Abu Dhabi, Dubai and the federation release separate spending and revenue forecasts for the year, which together make up the consolidated budget.

In a bid to bolster fiscal policy, the FCC has been set up by the Government to more closely manage overall spending in the longer term.

The IMF welcomed the progress the FCC was making and urged the country to include information sharing on the financial operations of firms linked to the Government, said Mr Finger.

After a rise in expenditure during the global financial crisis, the UAE plans to start scaling back its spending this year.

Federal and emirates' budgets imply a small decline in spending by 0.5 per cent of non-hydrocarbon GDP this year, according to the IMF.

A scaling back of Government spending was important in the short term to ensure future generations of nationals enjoyed the same returns from oil revenues in the long term, said Mr Finger.

"Spending would need to be reduced to help maintain intergenerational equity for the medium to long term," he said.

But despite the overall dip in spending, funding pressures have risen within parts of the budget.

Salaries of public sector workers were raised this year by between 35 and 100 per cent, adding Dh3.4 billion (US$926 million) to spending. In addition, the Executive Council gave the go-ahead in January to a host of multibillion-dirham infrastructure projects in Abu Dhabi.

Such spending hikes created certain risks, said Mr Finger.

"The generous federal salary increase adds to expenditure rigidities, while the planned increase in Abu Dhabi's development expenditures suggests a need for careful project evaluation," an IMF report said.

But the hikes were more than offset by cuts in other areas of spending as well as higher non-tax revenues, it said.

tarnold@thenational.ae

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