São Paulo – The United Arab Emirates are managing to bring its budget and its government spending back to balance. However, an International Monetary Fund International Monetary Fund (IMF) survey of the country’s economy released last Wednesday (12th) warns that the “debt-ridden” Dubai threatens economic performance in the medium term.
According to the IMF, the Emirates are committed to managing rising government spending and cushioning sharp declines in oil prices. The IMF notes that the Emirates began cutting costs in 2012, and were able to double its fiscal surplus, which stood at 8.8% of the Gross Domestic Product (GDP), as against 4.1% in 2011.
The cost reduction efforts continue this year through subsidy reduction. At the same time, the country forecasts that its services, defence and security, and wage bill budgets will be higher than in 2012. According to the IMF survey, due to lower oil prices, the Emirates should post an 8.1% fiscal surplus this year, which should gradually decrease to 5.1% by 2018.
The Fund estimates that the oil barrel price will be US$ 108.1 by late 2013 and US$ 90.9 in 2018. This year, The United Arab Emirates’ GDO should be US$ 387 billion, up 3.6% from 2012.
Although it acknowledges the government’s efforts in balancing out its finances, the Fund warns that Dubai may jeopardize the country’s economic performance in the medium term.
“Dubai’s megaprojects will be executed to a large extent through government-related entities. While further investment in the development of Dubai’s economy is welcome, the authorities should ensure that, in line with current intentions, execution will be gradual and flexible depending on demand,” according to the IMF report. The survey notes that Dubai still has outstanding debt harking back to the 2008 crisis, and claims that the emirate’s total US$ 142 billion debt is equivalent to roughly 102% of its GDP.
*Translated by Gabriel Pomerancblum
