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Mon 5 Jan 2009 01:01 PM

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UAE 'likely to see budget deficit in 2009'

Standard Chartered says expenditure likely to overshoot amid collapse in oil price.

The collapse in oil prices means that the UAE is likely to run a budget deficitdespite the government forecasting a balanced budget for 2009,Standard Chartered said on Monday.

The UAE Federal National Council (FNC) last week approved the draft federal budget for 2009, which is the largest in the country’s history, in the hope that increased expenditure will stimulate the economy.

“Even with the UAE forecasting a balanced budget, we are more likely to see expenditures overshooting and a fiscal deficit,” Standard Chartered economist Mary Nicola said in a research note.

The 42.2 billion dirham ($11.5 billion) no-surplus and zero deficit budget represents a 21 percent increase from 2008.

Indeed, the bank expects most of the region to run fiscal deficits in 2009, despite the fact that its oil price forecasts are more optimistic than those of many other economists.

“Although we forecast oil prices to average $58 per barrel, we do expect volatility in oil prices in the first half of the year,” said Nicola.

She added that these deficits were “both justified and appropriate” as “government spending needs to increase to pick up the slack in the economy”.

Saudi Arabia last month announced a projection for a budget deficit of 65 billion riyals ($16 billion) this year as it boosts public spending to stimulate its economy.

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