UAE cuts 2021 federal spending by 5.3% on low oil prices, COVID-19

Dubai — The UAE, OPEC's third largest producer, lowered its federal spending for 2021 by 5.3% after a record budget this year, the government said Nov. 1, as low oil prices and the COVID-19 pandemic impact revenue and economic growth.

The UAE's federal budget was cut to dirhams 58.113 ($15.8 billion) for 2021 and the government "will continue to implement major projects and focus on social development sectors, despite the global economic conditions," according to a statement from the media office of Sheikh Mohammed bin Rashid, the UAE's vice-president and prime minister and ruler of Dubai.

The 2020 budget of Dirhams 61.35 billion is the largest in the country's history, is 2% higher than 2019 and has a zero fiscal deficit.

"Aiming to achieve the fastest economic recovery, the 2021 budget is formulated to address economic changes without compromising the national development priorities, and we look forward to more achievements in the coming year," Sheikh Mohammed said in the statement.

Economic contraction

The federal budget of the seven-member UAE federation does not include those of Abu Dhabi, Dubai and Sharjah, the three largest emirates that have their own budgets.

The International Monetary Fund is forecasting the UAE's economy to contract 6.6% this year on low oil prices and the COVID-19 outbreak. It is expected to recover with 1.3% growth in 2021.

The IMF has projected that the UAE's breakeven oil price that is needed to balance the budget will be $75.90/b for 2020 and $66.50/b for 2021.

The UAE is forecast to swing to a fiscal deficit of 9.9% of GDP in 2020 that will narrow to 5.1% of GDP in 2021, according to the IMF.

The UAE pumped 2.54 million b/d in September, lower than its 2.59 million b/d quota, according to the latest S&P Global Platts OPEC+ survey, to make up for overproduction in August.