Infrastructure expenditure is due to rise by 46.5% in 2018, accounting for 21% of total spending.
Dubai – A record spending of Dh56.6 billion envisaged in Dubai’s expansionary budget for fiscal 2018 will trigger a major jump in investment spending and provide a major boost to the economy, analysts said.
The budget, allocating an increased spending to boost infrastructure efficiency, is line Dubai Strategic Plan 2021’s targets and future commitments, especially Expo 2020.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said infrastructure expenditure is due to rise by 46.5 per cent in 2018, accounting for 21 per cent of total spending.
“This reflects higher spending on Expo 2020 related projects ahead of the vent, including buildings and the metro extension. Other areas will also see an increase in spending, with wages and salaries set to rise by around 10 per cent (account for 33 per cent of the 2018 budget), in part due to over 3,100 public sector jobs that are expected to be created. The budget continues to reflect a strong commitment to social expenditure, including health, education and housing,” she said.
Malik said the new spending plan is 19.5 per cent higher than the 2017 budget, which saw only a 2.6 per cent increase in expenditure. “We believe actual 2017 fiscal support was stronger than implied by the modest spending increase, due to budget restructuring.”
Atik Munshi, senior partner at Crowe Horwath – UAE, said Dubai government has always been focused on growth and the current budget for 2018 reiterates the same.
“A higher spending by the government particularly on the infra structure projects for Expo 2020 and extension of Metro line will provide a lubricant to the wheels of the Dubai economy and also deliver a thrust to future growth,” Munshi told Khaleej Times.
He said private sector is expected to reap benefits from this injection. Additional spending by the government generally results in more jobs and a better economy. “This growth-oriented budget will boost the confidence of resident and overseas investors and create new opportunities in the market,” he said.
On Sunday, unveiling the budget, Abdulrahman Saleh Al Saleh, Director-General, Dubai Government’s Department of Finance, said that the Expo presented challenges that require the government to focus on availing construction expenses needed for the mega infrastructure projects.
He noted that such projects will not only benefit the success of the huge international expo upon launching in three years, but is also expected to serve Dubai for decades to come, especially in light of Dubai’s noticeable urban expansion towards the Expo project area.
According to Al Saleh, Dubai’s commitment to Expo excellence, and to UAE’s leading status on the international scene has led to approving a budget with a Dh6.2 billion deficit, representing 1.55 per cent of the total GDP in Dubai. This is a result of a 46.5 per cent rise in the infrastructure spending over the fiscal year 2017, and including over Dh5 billion dedicated to Expo projects.
Malik observed that Dubai’s 2018 budget deficit is up from a Dh2.5 billion deficit forecast in the 2017 budget, which is estimated at 0.6 per cent of the GDP.
“Government revenue is set to rise.12 per cent in 2018 to Dh50.4 billion. We believe that government revenue could be higher in 2018 than budgeted, due to greater VAT receipts. There has not yet been an announcement on how VAT will be divided in the UAE between the federal and the emirate levels. We tentatively estimate that Dubai could raise Dh4.5-5.5 billion 2018; the budget implies a smaller increase in tax revenue in our view.”
She said tax receipts account for 21 per cent of total revenue in the budget, up from 16 per cent in 2017. The budget also implies an increase in revenue from fees in 2018, though its share will moderate to 71 per cent from 76 per cent in 2017. “We expect some broadening and increase in fees for government services, which will also boost revenue growth.”
Malik said the budget supports the bank’s expectation that investment activity would drive GDP growth in 2018; and the UAE’s consolidated spending growth should increase gradually in 2018.
“We have not increased our UAE GDP growth forecast for 2018 on the back of the sharp rise in infrastructure spending, as many of the Expo-related projects have already been awarded and are included in our forecasts. We note that Dubai’s investment programme will be wider than implied in the budget, as many non-Expo development objectives will be implemented by government-related entities (GREs) and thus not reflected in the budget,” she said.
Real estate developers are also pushing to complete projects ahead of Expo, Malik pointed out. “However, we expect private consumption and wider corporate activity to be dampened by the introduction of VAT. There are signs of household spending being frontloaded, while corporates will have to deal with regulatory and administrative aspects of VAT, including building internal systems and the impact on cash flow,” said Malik.