UAE to cut government spending for first time in 13 years

The UAE will cut spending in 2015 for the first time in 13 years, as low oil prices lead the government to take major action on reducing energy subsidies, according to the first official breakdown of the government’s spending plans for the year.

Government spending is set to fall by 4.2 per cent to Dh460 billion in 2015, down from Dh480bn last year, data from the Central Bank and the IMF shows. The country had increased spending by an average rate of 12 per cent each year since 2004.

The governments of the UAE – the seven emirate-level governments plus the federal government – plan to acknowledge IMF recommendations to reduce spending on subsidies by more than a third across 2015, the data show.

Spending on subsidies is set to fall by 34.3 per cent to Dh13bn this year, which represents a Dh6.8bn reduction. That is a result both of falls in commodity prices, and the phasing out of subsidies on consumer products.

Reductions in subsidies have already begun – Abu Dhabi Distribution Company ended subsidies on electricity and water for expats in January, and the Ministry of Energy has announced plans to phase out fuel subsidies. The government also plans to reduce grants by almost half – with spending set to fall to Dh11.3bn, down from Dh21.9bn last year.

The UAE plans to increase spending on public sector wages by 3.4 per cent this year, with the government’s wage bill set to increase to Dh 48.8bn this year, up from Dh47.2 bn last year.

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