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Dubai to cut state spending by 20– 25 per cent

The wealthy emirate is weary of budget deficit to get out of hand

Reuters, Friday 20 May 2011
(Photo: Reuters)

Dubai plans to cut state spending by 20 to 25 per cent until 2013 to taper its financing gap, a member of the emirate's Supreme Fiscal Committee was quoted as telling a newspaper.

The move, which aims to save up to 3.5 billion dirhams ($953 million), is a "precautionary measure" Ahmad Humaid al-Tayer told Friday's Gulf News.

Earlier this year, Dubai's ruler approved a 2011 government budget with a deficit of around 3.77 billion dirhams.

"To fill the resulting financing gap, expenditure by government bodies in Dubai should be cut by 20 to 25 percent until 2013," Tayer said.

Dubai has about $30 billion of debt maturing over the next two years, with $12 billion of that due this year. The largest is a $4 billion loan to Investment Corporation of Dubai that falls due in November.

The 2011 gap is equivalent to 1.1 percent of gross domestic product in 2008, the latest year for which full economic output data is available.

"The shortfall in the 2011 budget is not a major concern as yet, and definitely we'll be looking for alternatives (in revenue streams) throughout the year," Al Tayer told the paper.

Analysts expect that Dubai will cover the shortfall by issuing bonds despite a challenging debt outlook.

A burst property bubble forced Dubai to get to grips with its debt pile, estimated at $115 billion or 123 percent of GDP, and introduce austerity measures over the past year.

The emirate was bailed out by wealthy neighbour Abu Dhabi, the capital of UAE, in 2009 with a $10 billion lifeline.

Tayer said the move to cut spending over the next few years did not mean that government entities would increase fees or service charges to boost revenues.

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