Dubai tells officials to find another $1bn in cuts

Dubai orders government departments to cut spending by 15 per cent as the emirate aims to plug a budget shortfall.

Dubai has ordered government departments to cut spending by 15 per cent as the emirate aims to plug a budget shortfall that has grown since the global economic downturn. Officials have been told to make the cuts to save Dh3.7 billion (US$1bn). Revenue from the new Dubai Metro, the Salik road toll system and other infrastructure projects also form part of the Dubai Government's planned "efficiency measures" aimed at bringing the budget back to surplus.

Under a budget approved in January, the Government said it expected to run a Dh6bn deficit this year, its second shortfall in a row despite cutting spending by 6 per cent. "These are cost-efficiency measures announced as a follow-up to the most recent stated budget," said a spokeswoman for Dubai's Department of Finance. "The stated budget remains unchanged." Dubai's Supreme Fiscal Council, headed by Sheikh Ahmed bin Saeed Al Maktoum, announced the cost-cutting measures as it prepared a budget plan for 2011 to 2013 that aims to turn the emirate's Dh5.99bn budget deficit into a surplus.

Its economy has been weighed down by a steep fall in the property market and large debt, recently estimated by the IMF to be $109bn. "Improving economic conditions and prudent fiscal policy should allow government finances to return into surpluses in the medium term," said Tim Fox, the chief economist at Emirates NBD. In Dubai, government revenues are expected to reach Dh29.4bn this year, with expenditure projected to total Dh35.4bn. The Government expects this year's budget deficit to be equal to about 2 per cent of GDP.

Monica Malik, the chief economist at EFG-Hermes in Dubai, said she had forecast a slightly higher deficit, equal to about 4 per cent of GDP, although details of Dubai's spending and budgeting remained limited. "Our growth figure has taken into account Dubai's stretched fiscal position, which is further heightened by the result of the heavy debt burden of Dubai Government-related entities," Ms Malik said.

The focus of any government spending would probably be on infrastructure, she said. Dubai has invested heavily in infrastructure projects in recent years. The Dubai Metro is expected to be fully operational next month, and the Al Maktoum International Airport is also opening this year. Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, last December issued laws to cut costs that require departments to submit their annual budgets for approval to Dubai's Supreme Fiscal Committee.

The emirate had forecast its first ever deficit for its 2009 budget, at 1.3 per cent of 2007 GDP, or Dh4.2bn. [e-mail]