UAE Survey - The UAE Economic Base.

Strong crude oil prices which slashed the UAE's fiscal deficit by nearly 300% in 2002 are expected to have another significant impact on the 2003 budget. The federal government had projected a deficit of around Dh29.16 bn ($7.94 bn) when it released its 2002 consolidated fiscal account (CFA), which included the federal budget and domestic expenditure by each emirate. But new figures showed the actual shortfall was only Dh10.5 bn (about $2.86 bn), some 4% of the 2002 GDP.

This was the lowest actual CFA deficit since 2000, when the shortfall plunged to its lowest level of around Dh6.8 bn (US$1.85 bn) since the end of the oil boom 20 years ago. According to a recently released report by the federal Ministry of Planning, the actual deficit in the 2002 CFA was cut because of a sharp increase in revenue due to strong oil prices. From a forecast of Dh57.2 bn ($15.58 bn), actual revenues surged to around Dh78.1 bn ($21.3 bn) through 2002. This included nearly Dh56.1 bn (US$15.2 bn) in oil sales. The rest came from customs and other non-oil exports.

The report showed actual spending was raised to around Dh88.6 bn ($24.1 bn) from a projected Dh86.3 bn (US$23.5 bn). Capital spending was nearly doubled to Dh25.8 bn ($7.02 bn) while current expenditure, covering salaries and government purchases, was trimmed to Dh62.7 bn ($17 bn) from around Dh72.3 bn ($19.7 bn), according to the figures.

A planning ministry official said: "No figures have been released so far about the 2003 actual budget but according to initial information, the deficit has also been largely cut because oil revenues were very high last year". The 2003 the CFA deficit was forecast at Dh31.4 bn ($8.55 bn), nearly 11.2% of the GDP. Revenues were projected at around Dh68.4 bn ($18.6 bn) but experts believe they were much higher as crude prices hit their highest average since the end of the oil boom, exceeding $28/barrel. Despite the persistent deficit in the CFA and the federal budget, analysts believe the shortfall is manageable as it has been easily covered through returns from the country's massive overseas investments and spending has remained under control.

The UAE oil sector continued its growth for the third year running to reach record levels in 2003 as a result of high crude oil prices, coupled with the increase in production. The federal Minister of Petroleum and Mineral Resources and Chairman of the Board of the Abu Dhabi Islamic Bank, Obaid Bin Saif Al Nasseri, said in the bank's report at the annual general meeting that the oil price averaged $28.1/barrel in 2003 compared to $24.4/b in 2002 and $23.1/b in 2001. "This had a positive effect on the recovery of economic conditions in the United Arab Emirates, where the average GDP growth rate (according to preliminary estimates) reached 10% (at current prices) and the growth rate of the non-oil sectors reached 6.4%. Moreover, he added, the UAE obtained a rating of A+ from the international rating agency "Moody's", to rank first in the Arab Gulf region as to credit rating".

The minister said: "It is worth mentioning that a rating of A+ is usually given to countries that enjoy strong creditworthiness and a low investment risk environment". He pointed out that the past three years presented a series of security and political challenges, and the global economic environment was enshrouded in uncertainty. However, although the year 2003 was full of challenges and causes of tension, most world economies were able to grow.

The US economy recorded a growth rate of 3.1% compared to 2.4% in 2002. The Eurozone economy recorded a more tame growth rate of 2.2%, an increase of 0.4 percentage points compared to 2002. The global economy recorded a growth rate of 3.3% compared to 2.7% in 2002. As for the developing countries, the rate of economic growth was 3.3% compared to 2.7% in 2002.

The US dollar declined against major world currencies to reach its lowest rate against the Euro since the launch of the single European currency. Al Nasseri said that the UAE banking sector had achieved positive results and maintained its strength and resilience in the face of challenges. This allowed it to produce more profits, which will ensure the ability of the country's banking system to cope with the new developments and challenges and to meet Basel II requirements for risk management, which will be implemented in 2007 by banks worldwide.