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Dubai 2019 budget – Muted spending growth leaves few reasons for excitement

Nearly flat spending projected in 2019…

Dubai’s 2019 budget carried limited positive surprises for a slowing economy, showing that the government is budgeting for nearly flat spending growth in 2019 (up only 0.4% compared to 2018 budget). The government is planning to maintain healthy spending on wages (up 7% Y-o-Y) and general administrative affairs (up 12% Y-o-Y), while cutting infrastructure spending by a sharp 23% Y-o-Y. The sharp reduction in investment spending reverses two years of strong growth (37% per annum on average) as a number of big projects come to an end. On the revenue side, the government is also budgeting for a limited increase (1.2% Y-o-Y), given a 10% decline in revenues from fees and fines, by far the largest source of income for the government. This is the second consecutive year in which fees are set to decline, reflecting the government’s policy to reduce the cost of doing business in the emirate; the government decided last year to reduce some of its fees, freeze fee increases for three years and refrain from imposing any new fees without providing a new service. Compensating for that decline, the government is budgeting for a 33% increase in oil revenues, 50% increase in enterprise profit (dividends from government-related entities, GREs) and 19% increase in tax revenues.
…as gov’t aims to strike a fiscal balance

The sharp spending cut in infrastructure spending is clearly the highlight of the budget, especially for an economy that has been on a slowing path for the past few years. We see this largely reflecting the maturity of the project cycle, with many of the Expo 2020 related projects coming to an end. The government, however, opted to keep spending elevated by pushing for higher spending for wages and administrative affairs to provide some support to economic activity. The government also aims to provide such support, while maintaining fiscal discipline, with the deficit set to narrow 6% to AED5.8bn. 
Challenging times still lie ahead

On a macro level, we see 2019 as still being a challenging year for Dubai, with a number of headwinds still weighing on the economy, including soft regional and global economic growth, high interest rate environment, low oil prices and weaker currencies in key trading partners. Most of these factors reflect typical cyclical pressures for a diversified economy as Dubai’s. We have already seen these factors weighing on the economy’s key sectors in 2018 with property prices continuing to slide, tourism being flat and the aviation sector barely showing growth. In addition, structural factors – reflected mostly in rising cost of doing business and the need for structural reforms – will also keep pulling the breaks of the economy,

Mohamed Abu Basha