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Fri 20 May 2011 11:06 AM

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Dubai gov't eyes 20-25% spending cuts to 2013 - report

Supreme fiscal committee member says action is a 'precautionary measure' amid budget deficit

Dubai gov't eyes 20-25% spending cuts to 2013 - report
Dubai plans to cut state spending by 20 to 25 percent until 2013 to narrow its funding gap. (Getty Images)

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

The move, intended to save up to 3.5 billion dirhams ($953 million), was 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 AED3.77 billion.

"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, part of the United Arab Emirates seven-emirate federation, to 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 in 2009 with a $10 billion lifeline helping its Dubai World property unit Nakheel narrowly avoid default on Islamic bonds.

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.

The UAE is one of the few countries in the Arab region not hit by regional unrest, after several countries, including nearby Oman and Bahrain, saw waves of protests inspired by uprisings that toppled Egypt and Tunisia's leaders.

Both business hub Dubai and oil wealthy Abu Dhabi, the federal capital, are seen as unlikely sites of unrest. But the federation has pledged some $1.6 billion to improve infrastructure in its poorer northern emirates, and has also subsidised goods such as bread and rice.

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