UAE May See Budget Deficit In 2009

January 6, 2009 12:38 p.m. EST

Washington, DC (THE MEDIA LINE) - The United Arab Emirates (UAE) is likely to have a budget deficit in 2009 despite promises from the government of a balanced budget, ArabianBusiness.com reported.

Last week, the UAE Federal National Council (parliament), presented the nation's largest balanced budget ever, estimated at $11.5 billion, an increase of 21 percent, in the hope that increased spending would stimulate the country's economy.

The budget was presented as a balanced budget, meaning that it would yield neither a surplus nor a deficit. Deficit is the technical term used to describe when a government or company plans to spend more money than it earns. When the same situation occurs among most nations, they tend to borrow money either from private banks or countries such as the UAE in order to balance the budget.

In the case of the UAE, the most likely scenario is that the government will tap into substantial currency reserves, which it has built up over the years from its oil exports, The Media Line's financial expert said.

In their efforts to decease their dependency on oil, the kingdoms that make up the UAE, mainly Abu Dhabi and Dubai, have developed their financial industries by providing lucrative incentives in order to attract foreign companies.

The expanding financial sector has also generated a need for office and housing real estate, triggering one of the most rapid urbanization processes in the world, which in turn has attracted even more foreign capital and workers.

Both kingdoms have also worked hard to develop their tourism industries.

The downside for these industries is that they are all dependent on developments overseas, so when the global economy is slowing down, the effects are felt particularly hard in small and open economies like the UAE's.