#Budget shows oil is not the lifeblood of #Dubai’s growth The #Dubai government budget for 2015 was a long time in the preparation and crept into the new year by a couple of days. Some financial watchers speculated that the delay was down to the fact there was a rethink going on at the Department of Finance and the Supreme Fiscal Committee because of the changing economic landscape brought about by the rapid decline in the oil price. But when the budget appeared, that suspicion was laid to rest. The figures confirmed definitively what we’ve known for a long time: oil revenues are not vital to the government finances of Dubai, as they are to may other governments across the Arabian Gulf. At a mere 4 per cent of revenue, oil is not central to policymakers’ economic planning. The falling price affects the emirate’s economy in other ways, from the “feel-good factor” in the stock markets to investment and consumer spend from other Gulf countries, but as a direct contributor to the Dubai economy it’s only marginal. Once that essential fact is grasped, the rest of the budget falls into place. Without big energy revenue, Dubai relies on its own strengths and resources. The picture that emerges is of a growing, expansionary environment, well started on the growth trajectory set for Expo 2020. Having said that, there are a couple of caveats. The figures would have been much more illuminating if the actual financial outcome for 2014 had been presented. To compare what is essentially one set of forecasts with another is less meaningful than comparing with the hard financial results. And it should also be borne in mind that the budget only represents revenue and expenditure by central government, and as such amounts to not much more than 10 per cent of total Dubai GDP. The rest of the financial space – dominated by big government-related enterprises (GREs) and sovereign investment groups – is much more important in setting the economic pace. That said, there seems no sign that the GREs or big investment groups are any less expansionary than central government. All are committed to high levels of capital expenditure as the emirate races towards 2020, in real estate, trade and transport, the commercial lifelines of Dubai. But central government sets the tone, so it was significant that the central plank of the 2015 budget was a commitment to a surplus over the year, unlike in some states. Dubai thinks it will turn a Dh3.6bn profit on its Dh41bn budget, which is a healthy margin by any commercial reckoning. Revenue is overwhelmingly reliant on the sale of government services, which include all those charges essentially for living in the UAE, from visa fees to Salik road charges, which constitute 74 per cent of total government revenue. Although fiscal experts would dispute the terminology, there is little to distinguish these from what would be known elsewhere as tax. And they are rising – about 22 per cent up from 2014. This has to be an area of concern if professional and commercial life in Dubai is to remain competitive and attractive. Proper tax, which is levied on foreign banks in Dubai and some other companies, is also on the rise, up 12 per cent on the year and comprising 21 per cent of total government revenue. The emirate needs to keep charges for government services and tax on an upwards trend to pay for its two big items of expenditure – salaries and administration. Spending on administration, capital expenditure, grants and subsidies will account for 44 per cent of the total government spend, which is good news for the national community, which is the main beneficiary. Emiratis also stand to gain from the other big-ticket item on the spend side, salaries and wages, which will take up 37 per cent of total spend with 2,530 jobs being created next year. The whole population gains from the 13 per cent of spending that will be committed to maintaining Dubai’s excellent infrastructure. A relatively small 6 per cent will be used to finance Dubai government debts, largely sukuk and bank borrowing. The message is that, even with oil plummeting all around, it is business as usual for Dubai, and that business means growth.
Posted on: Wed, 07 Jan 2015 05:04:39 +0000
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