Budgetary System Analysis of UAE
This analysis is based on the budgetary system of United Arab Emirates – UAE. Some basic facts and information about the country are discussed at first and after that the budget of U.A.E is described and an analysis is presented in the end of the report. The report sheds light on the current budgetary system followed in UAE and changes to the budgetary system, which are under consideration for future budgets. The proposed system of zero-based budgeting in the UAE is also discussed.
Background of UAE
United Arab Emirates is the formal name given to a unification of 7 emirates or entities united on the 2nd of December 1971. The Emirates in UAE are Ajman, Sharjah, Abu Dhabi, Dubai, Ras-al Khaimah, Fujairah and Umm-al-Qaiwain. UAE has a total area of 83,600 square kilometers and is a part of the Middle East (Emirates.org, 2007). The population of UAE is approximately 4.8 million and the native citizens are only 20 percent in this population.
The climate of UAE is warm with high temperature and high levels of humidity in the summer season. The national language of UAE is Arabic but other languages are also used and the local currency units are Dirhams and Fils (Conext.com.au,
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The economical conditions of UAE have become quite strong as there is an abundance of natural resources like oil and natural gas. The economy of the Emirates depends heavily on oil and in recent years the emirates have seen a huge amount of inflows in the form of foreign investment especially in the oil and real estate sector. According to IMF UAE had a GDP of $164.2 billion and the estimated GDP of 2009 is $255 billion.
The IMF also indicates that the growth during 2007-08 was rather strong although the last quarter of 2008 witnessed decline due to the worsening global economic crisis (Imf.org, 2009). UAE also has a very high Human Development Index – HDI and is ranked 31 in all countries of the world in the United Nations Human development reports (Human Development Report Office – United Nations Development Programme, 2008).
Description and Analysis of the Budgetary System
The budget document of any country contains the information on different sources of revenue and allocation of expenditures for a given period of time which is usually one year. The budgetary system provides guidelines to the leadership of a country on how to prepare budgets. Through the budgetary system the leaders of a country decide how to spend money and on what items should the money be spent. When the allocation of expenditures has been estimated, the sources to generate revenue for this spending are projected.
The budgetary system of UAE was not very large and detailed in the earlier years but the budgetary system has come quite far in terms of size and efficiency in the recent years. In the initial years of the united emirates the budget did not cover a wide range of development expenditures and the main source of income was the abundance of oil present in the emirates.
The leadership of UAE and the ministry of finance and industry have been making efforts to prepare balanced budgets after implementation of the Federal law No. 23 in 2005. The ministry has somewhat succeeded in achieving this goal since the budgets being announced after 2005 are more balanced as compared to the previous budgets according to Dr. Kharbash, the Minister of State for Finance and Industry (UAEInteract, 2007).
The recent budgets of UAE are people friendly and devoted to social welfare programs including education, healthcare and youth development. The main revenues in these budgets are from the public and economic sectors. The allocation of these revenues in the 2009 budget focus greatly on social welfare and education, as AED9.7 billion – 23 percent of the budget is allocated to the education sector and AED 15.6 billion – 37 percent of the total budget is allocated to the services sector (Augustine, 2008).
The budgets of the recent years are not dependent on oil as the earlier budgets but rely more on the public sector and economic sector to contribute to income. The expenditures of the budget are more development oriented and people friendly. The 2009 budget is the largest budget in the history of UAE, the budget amount has increased by 21 percent with a net worth of $11.5 billion or AED42.2 billion (Government Communications Office, UAE, 2009). Before this budget the 2008 budget was the largest budget of history and before that the budget of 2007, this shows that the Government of UAE has made efforts to increase the efficiency and size of the budgets in recent times.
The future outlook for the budgetary system of UAE is quite positive as the Government has announced the intention of completely renovating the budgetary system. The current budgetary system will be replaced by a new zero-based budgeting system. The zero-based budget will be implemented from 2011 and the budget period of the new system would be three years instead of 1 year. According to the Government officials the new budgetary system would contribute to the transparency in preparation of budgets and increase the effectiveness in implementation of various proposals (Ramavarman, 2009).
In zero based budgeting system the budgeting starts from a base of zero and all functions in an organization are analyzed for the needs and costs and the budget is designed according to these needs and costs for the future period regardless of the previous budget. The zero based budgeting system is cost effective as it evades the fluctuations in a previous budget but it is more prolonged than a usual budgetary system. In zero based budgeting system the cost and benefits associated to operations are estimated and the resulting increase in value is determined (Economist.com, 2009).
The budgetary system of UAE has improved significantly since 2004-05 and the Government is making efforts to further increase the efficiency of the budgets. The budgets prepared by the Government allocate large portions of the budget to education and social services sector and estimate higher revenues from the public and economic sectors. The authorities have decided to change the budgeting system and adopt the zero based budgetary system which would be spread over a period of three years.
This new system shall be implemented from 2011 and the first zero based budget would cover the period 2011-2013. The Boston Consulting Group has been chosen by the ministry of finance to design the basic ideas of the zero based budget of the country. The future outlook of the budgetary system is quite positive in the sense that the country would reap the benefits of the zero based budget in the years to come.
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