The government of the UAE aims to deliver a balanced budget in 2018 through a combination of measures that will involve federal government working in co-ordination with the governments of the UAE’s seven emirates, according to a statement attached to the end of the IMF’s annual Article IV report published yesterday.
The UAE as a whole had a budget deficit equivalent to 2.1 per cent of GDP in 2015.
“…the authorities are proceeding with further fiscal consolidation in 2016,” the statement says. “A front-loaded adjustment is planned in the Emirate of Abu Dhabi, and a slight consolidation is planned in the Emirate of Dubai and at the federal level.”
‘The authorities aim to reduce the dependence of fiscal revenues on the hydrocarbon sector and to diversify non-oil revenues,” the statement says. “Plans for a value-added tax in the context of a GCC-wide initiative at a rate of 5 percent are currently underway to be introduced in 2018, as well as an increase in excise taxes on tobacco and alcohol and a tax on soft drinks. On the spending side, the authorities plan to continue scaling back grants and capital transfers to GREs as well as to stabilize the wage bill as a share of non-oil GDP.”
The statement, which was issued by the UAE’s IMF executive Hazem Beblawi on behalf of the government of the UAE says that the UAE has agreed gradually to phase out electricity, water, and gas subsides. It is also studying the impact of the possible introduction of a corporate income tax.
“The authorities agree with staff that financing of the fiscal deficit should include tapping the international capital markets or the sovereign wealth funds while limiting drawing down government deposits in domestic banks,” the statement says.
The statement says the UAE government has oversight of the investments and debt plans of government-related entities (GREs). Abu Dhabi and Dubai is reviewing the GREs’ debt issuance and GREs continue to be bound by concentration risk limits set by the central bank.
A new central bank and banking law will enhance central bank independence and governance, set up a sound institutional framework for financial stability oversight, and address shortcomings of safety nets and resolution frameworks,’ the statement says. Basel III regulations will be phased in gradually by the end of 2018.
“New regulations have been developed covering risk management and are currently under discussion with the banking sector,” the statement says “Moreover, the authorities plan to review the regulatory framework for non-bank financial institutions and will engage with different stakeholders by end-2016.
The statement says that the central bank does not expect to see a significant impact from the UK’s decision to leave the European Union.
The statement says the UAE plans to carry out an anti-money laundering and terrorist finance risk assessment and has asked for the IMF for technical assistance.
The statement says the UAE plans to launch an initiative to double the manufacturing sector’s share of the economy from 11 per cent to 20 per cent by 2025, by improving innovation and promoting energy-efficient manufacturing.
The statement said the IMF’s non-oil economy grew by 3.75 per cent in 2015.
‘The growth outlook is expected to somewhat moderate in 2016 amid low oil prices and a slowdown in investments due to the continued commitment for fiscal consolidation,” the statement says, “However, going forward, investments related to Expo 2020 such as the expansion of the national network of airports and rail network, air and maritime transport means, roads, tourism facilities, real estate as well as the knowledge based economy are expected to further support higher growth from 2017 onwards.”