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Wed 30 Nov 2011 03:47 PM

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UAE unveils $2.7bn fund to pay debts of poor

Gulf state also doubles wages of some state employees ahead of 40th National Day

UAE unveils $2.7bn fund to pay debts of poor
UAE President Sheikh Khalifa bin Zayed Al Nahyan

The UAE on Wednesday set up a AED10bn ($2.7bn) fund to help pay low-income citizens' debts and announced plans to raise wages of some state employees, which may support its economy but also increase the fiscal burden.

President Sheikh Khalifa bin Zayed al-Nahayan also ordered a doubling of salaries of some state employees in the judiciary, health and education sectors from January to mark the 40th anniversary of the founding of the UAE, state news agency WAM said.

The UAE, a federation of seven emirates established in 1971 and one of the top five world oil exporters, has escaped unrest rocking the Middle East this year. It enjoys one of the world's highest per capita incomes of around $48,600.

"His Highness ... ordered the establishment of a AED10bn fund that will take charge of studying and dealing with loans of low-income citizens, and to process settlements of personal loans due from them in coordination with the central bank and lender banks," the agency said.

Senior officials would receive a 35 percent pay increase, while a 45 percent pay rise would be given to mid-level federal government employees, WAM said.

It did not say how many state employees will get the increases, what was the total amount of the wage package or how it will be financed.

Most UAE fiscal spending occurs at the level of individual emirates, mainly oil-wealthy Abu Dhabi, with the federal budget accounting for only 11 percent of the total.

The government has already announced plans to invest $1.6bn over three years to improve living conditions in less developed northern emirates and a 70 percent rise in military pensions among other measures.

The UAE's safe-haven status, high crude prices, strong trade flows and higher government spending are seen driving its economy to 3.8 percent growth in 2011.

The National Bureau of Statistics expects a 4.2 percent expansion this year, much faster than 1.4 percent growth in 2010, when the OPEC member's $297bn economy had been recovering from a $25bn debt restructuring at Dubai's flagship conglomerate Dubai World.

Economists said the measures should encourage household spending and bank lending, which has been sluggish following Dubai's woes, but the impact was hard to quantify due to a lack of details.

"The wage increase will be positive for sentiment and adding momentum to the recovery in private consumption, which was already boosted this year by a rise in tourism, especially from the GCC,” said Monica Malik, chief economist at EFG-Hermes in Dubai.

Some economists said that the impact of the wage rise on the economy would be limited as nationals are estimated to make up only around 20 percent of the country's population, which according to 2009 government statistics stood at 5 million.

It will, however, increase a fiscal burden for the state.

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"Inflation is not a concern. There is a greater fiscal vulnerability because the fiscal break-even [oil] price has risen sharply over the years," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

The oil price the UAE needs to balance its budget on a consolidated basis is estimated at $82 per barrel this year, sharply up from just $21 in 2005, he said.

The UAE, which pegs its currency to the dollar, has hundreds of billions of dollars of sovereign wealth to support its budgets if oil prices, now trading above $111 per barrel, were to stay weak overall longer term.

Consumer prices in the UAE dipped by 0.1 percent in October, which was the first annual price decline since February 2010.

UAE markets ended higher on Wednesday after the news with Dubai's benchmark up 0.6 percent and Abu Dhabi's index climbing 0.4 percent.

Sheikh Khalifa also ordered government departments to accord the children of Emirati women married to foreigners equal treatment to UAE nationals, WAM said. The order allows children of Emirati women to apply for UAE citizenship once they reach 18 years of age.

LazyLazyLazy 7 years ago

A policy that will continue to enourage a lack of responsibility and an absolute dependence on public sector jobs.

John 7 years ago

Why such generousity just all of a sudden?

Bu Khalifa 7 years ago

It is not strange and it is not the first time Sheikh Khalifa generously give back to his people he has been doing so ever since he was president he hiked salaries back in 2007 and many other kind gestures toward UAE and non UAE we are used to this so if your indicating it is the arab spring your just being lame your probably thinking about another country. These things been given to us by our wise leadership way before any arab spring. Happy national day

Ex_UAE 7 years ago

True, When I was in UAE (1990s), I have seen guys rewarded well during big occassions (EID, National Day etc). Most of the Arab Leaders are very happy to give, especically the rich ones from GCC. Happy National Day to everybody.

Hamish 7 years ago

This sort of radical increase in public sector makes it even more impossible to achieve Emiratisation in the private sector. Private companies, who are anyway suffering in the world recession and Dubai's own slump, simply cannot match such generousity, so are destinated simply to lose any capable Emiraties that we employ.

In our company we genuinely want to and need to urgently employ a number of local nationals to help with our local client management in the UAE. But this kind of government move seems to make that hope even more distant for us.

So it would appear to be highly counter-productive to the young local nationals of the UAE in the long term, even if those affected by this pay hike are pretty pleased. The only way of balancing this would be to provide equally generous subsidies to the private sector who employ and train up local nationals, rather than much better value expats. But I do realise this would be hard to implement, but I cant really see much alternative.

eggspats 7 years ago

Well done I'd say. As usual, the UAE leaders have shown a clear sense of responsibility for their own countrymen by redistributing the wealth of this land. Whether others recognise it or not, this has always been a policy of the leadership in this country. It may affect emiritisation quotas and it impacts inflation, so what? This is about redistribution of wealth and is clearly contrary to the regional governments who have little or no concern for their won people. Even globally, as we can clearly see, its the bankers and their friends in government who enjoy untold wealth (bailouts, bonuses and even more gambling with world economies) while everyone else has to struggle with 'austerity measures' - what a farce!
I'd say kudos to the wise and just leadership of this country in their magnanimous gestures to their own countrymen.

Richard 7 years ago

This way of sorting out the credit crunch should have been used in the UK but they got it wrong and gave the money to the banks again and now they do not lend it out they just keep it,
They should have given credits to people with loans to pay the money back to the banks so that way things get sorted out, people lose their debits and the banks get their money back to lend again,its all wrong here. Bankers get their big money and every body with debits can not get cheaper credit to pay back their more expensive credit or loans so it all gets depressed.
well done U A E.