Dubai to slash state spending

Dubai State Spending

The government of Dubai, the second largest sheikdom in the seven member federation of the UAE, has taken steps to save some much needed capital after a disastrous end to 2010 with the collapse of state-owned real estate giant Dubai World.

According to the finance department all factions of Dubai's government have been ordered to cut spending by 15 percent to save 3.7 billion UAE dirhams (USD$1 billion), with the aim of reducing the emirate's deficit of AED5.99 billion.

Property prices in the once booming city-state have been hit very hard with prices in some cases falling as much as 50 percent from their peak in late 2008. Dubai's oil-rich neighbour Abu Dhabi has been forced to bail out its economy on a number of occasions in the face of mounting debt.

Dubai is currently preparing a medium term budget plan for 2011-2013, a finance department spokeswoman said in an emailed statement. Government departments are looking to cut costs and expenses without affecting the quality of services, she added.

"This (spending cuts) is not a surprise and it is part of the de-leveraging Dubai is going through," said Saud Masud, head of Middle East research at UBS AG. "It is not a small amount, and we could see similar cuts taking place in the future."

Debt restructuring

Dubai World are currently undergoing some serious debt restructure, with the latest reports pointing towards a deal of 60 cents on the dollar, paid back after seven years, but backed by government guarantees. Lenders would receive no interest.

Zawya reports an alternative proposal involving creditors receiving full payment, including 40 percent of their Dubai World debt in the form of assets in Nakheel - the company's property unit - but with no government guarantee over the same seven-year period, the people familiar with the situation said.

The emirate's government said in January its 2010 budget revenue would total AED29.4 billion, down 12 percent from last year's estimate of AED33.5 billion.

Government expenditure is expected to be 6.1 percent lower than the figure envisaged for 2009 at AED35.4 billion.

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Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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