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The United Arab Emirates federal government will run a AED 3 billion (US $ 820 million) budget deficit next year and will freeze spending by state universities.

 

Federal spending is projected to be AED 41 billion in 2011, with revenues at a little over AED 38bn, according to figures provided by the cabinet.

 

The overall federal budget for 2010 was AED 43.6 billion, representing a six percent cut.

 

Most noteworthy is that funding for federal universities has been frozen at 2010 levels, despite concern over their finances and requests from them to increase their budgets. The budget will be constant for three years, meaning that measures including the freeze on federal universities are likely to stay in place until 2013.

 

United Arab Emirates University's budget will remain at AED 1.3 billion, and that of Zayed University at AED 321 million. The Higher Colleges of Technology, where financial troubles were the subject of an FNC report this year, had its budget frozen at a little over Dh735 million.

 

Sheikh Nahyan bin Mubarak, chancellor of the HCT and Minister of Higher Education, told the FNC last month the university's budget was the root of its hardships.

 

The budget of the Federal Electricity and Water Authority, which provides utilities to the northern Emirates, was cut to Dh5.bn, despite frequent complaints of water and electricity shortages there.

 

The ministries are not allowed to ask for more money this year unless they can fund it from their own revenues, according to the Cabinet's budget resolution.

 

The federal budget does not include some significant sources of revenue and spending. Armed Forces spending is excluded, as are oil revenues, because the UAE constitution enshrines the right of each emirate to manage its own natural resources.

 

Abu Dhabi’s contribution to the federal budget will decline from more than AED 14 billion in 2010 to AED 11.6bn in 2011. Dubai’s contribution remains steady at AED 1.2bn. The rest of the projected 2011 revenue will come from services provided by the ministries.

The largest source of revenue for 2011 is the Ministry of Finance, with a projected AED 16 billion. That figure is believed to include the telecom provider Etisalat’s contribution.

 

The main recipients of funding are the Defence and Interior Ministries, at a little over AED 6 billion each. Federal spending on infrastructure projects and “economic resources”, which incorporates the Ministries of Economy, Foreign Trade, Energy and Public Works, is more than AED 1.6 billion. The Ministry of Education will receive AED 4.6bn. Health and Social Affairs ministries receive just over AED 2.5bn each.

 

December 14, 2010

 

 

Analysis and Forecast: Increasing Risk


 

The details of the budget bring with it a number of concerns, on a number of fronts.

 

Firstly, the UAE government has announced earlier in the year that it would increase spending on university research, in an indirect attempt to counter the increasing dominance of other Gulf states in this area. The veteran minister of higher education, Sheikh Nayhan, who is a member of the Abu Dhabi ruling family, has been pushing for such increases. With a freeze in spending, projected to last for at least three years, thereby leading to an effective decrease in funding over the next three years if inflation is taken into account, the plans promoted by the UAE government to increase its spending on research are in total jeopardy. Any leading edge that the UAE may have been able to secure as a result of this pledge is now in question. This will negatively impact the government’s efforts at diversification.

 

Secondly, cuts in funding to the water and electricity company, through which the federal government provided heavily subsidized utilities to the northern emirates, will complicate matters further on this front. The northern emirates, particularly industrial Sharjah, has suffered from chronic power shortages and during the summer, whole neighbourhoods in Sharjah and factories were left without power, leading to billions in revenue loss for a number of industries, including factories, tourism and real-estate. The cuts will not only not help in resolving the situation, but will aggravate it even further.

 

Overall, the budget will create much unease both at the federal level, as well as the local level.

 

The figure below shows the breakdown of budget spending by ministries for 2011, in billion dirhams: