Balancing the books
The UAE announced its third consecutive zero deficit budget last month, justifying its move toward a performance-based budgeting strategy.
The 2007 federal budget is the first to apply the strategy since its introduction, along with a new budget law in 2005. The budget not only illustrates the federal government’s commitment to greater transparency and rigorous financial management but also highlights the key areas for national development for the next fiscal year and beyond.
Means to an end
The budget, approved by the UAE cabinet on October 15, completes a three-year run of balanced budgets. Prior to 2005, the country had experienced a spate of budget deficits stretching back throughout the 1990s. The successful balancing of the last two budgets was complemented by the announcement of a new budgeting strategy in 2005. This policy is aimed at insulating the country’s fiscal management from short-term disruption to government revenue such as oil price volatility.
Mohammed Khalfan bin Kharbash, the UAE minister of state for financial and industrial affairs, stated at the announcement of the budget maintaining a zero-sum budget was the reason for implementing the performance and program-based accounting as a basis, in addition to the new budget law issued last year, which stipulates the necessity of drawing up balanced books. However, he noted that the primary importance of the budget is to facilitate the provision of public sector services. He added that a balanced budget is a means rather than an end to serve the budget program and to enable the different sectors to achieve their goals.
The Dh28.42 billion ($7.74 billion) budget for 2007 is 1.96% more than in 2006, which was Dh27.87 billion ($7.59 billion). Kharbash clarified, The increase in is due to the rise in the ministries’ revenues to Dh9.92 billion ($2.7 billion), as well as investment income to Dh3.67 billion ($1 billion). Abu Dhabi and Dubai contributed 52% to the budget, the ministries 35% and investment income 13%.
The largest federal expenditure for 2007 will be government salaries constituting 33% of the budget and amounting to Dh9.19 billion ($2.5 billion). Expenditures for goods and services will come to Dh3.66 billion ($996m). The number of public sector jobs is swelling with more staff in the health sector as well as the ministries of Foreign Affairs, Labor and the Interior.
Minister Kharbash outlined the areas of focus for the budget, asserting that the 10 central programs for the 2007 financial year are education, power generation, police services, educational curricula development, curative services, social development, foreign policy and higher education at the UAE University and the Higher Colleges of Technology.
Education will receive the largest provision with a commitment of Dh7.11 billion ($1.94 billion) or 25% of overall expenditure. The next areas to receive a boost are security (11.93%) and health (5.44%).
Public sector investment
The budget also allows for strong public sector investment in infrastructure with Dh434.8 million ($118.38 million) being allocated. The Dubai-Fujairah highway is a central component of this expenditure.
Kharbash pointed out that there would be no increase in the cost of government services as a result of the budget. He also stressed that the budget factors in major projects over the coming three years as the UAE seeks to move towards a five-year budgeting plan.
This fits into recent plans to update the UAE budget law and strategy as the country implements a modern performance-based budgeting to achieve better disclosure and greater transparency. By linking spending with outcomes and measurable results, the UAE hopes to have a dynamic planning tool for the next three years.
At the micro level, performance-based budgeting will allow government ministries and agencies to exercise greater discipline. Also, it is expected to foster the development of mechanisms to allow public sector managers to assume more authority in setting spending priorities.
At the macro level, this feeds into creating medium-term financing strategies that are not affected by short-term changes in revenue streams. The Emirates have achieved a balanced budget despite large increases in oil prices last year. It cannot allow volatility in oil prices to drive the budget and fiscal policies. Abu Dhabi’s aim is to keep a balanced and growing national budget while increasing the efficiency of government operations and the overall effectiveness of the financial resources available and deployed. The 2007 federal budget is a statement of this intent.
