Case Study – Fiscal Budgets of the United Arab Emirates and KuwaitExecutive summaryThis paper examines the fiscal budgets of the United Arab Emirates and Kuwait. Comparison is made on the various components of fiscal budget which include energy, public revenue and expenditure, population and unemployment, employment and environment issues. The standard of Living in UAE is better than Kuwait although the GDP is close to each other where total GDP is 21Billion KWD while UAE IS 23Billion. The data used in this study is drawn from the GCC briefs, ministry of finance Kuwait and UAE, Central Bank of Kuwait and UAE and World Trade Organization trade reviews. All currencies are in Kuwait Dinar (KWD) where 1 USD = 0.284 KWD.
Key words: UAE, Kuwait, fiscal policy,Table of ContentsExecutive summaryIntroductionLiterature reviewMethodology and resultsReferencesA Comparative Analysis of Kuwait and the UAE Fiscal BudgetsIntroductionKuwait and the UAE implemented the most effective fiscal policies to counter the effects of the global economic recession in the year 2008. Fiscal policies were effective in that, they saved their economies from meltdown. UAE enforced measures such as the law that guaranteed bank deposits, a Dh50 billion liquidity boost facility by the central bank, capital injections by the government into five Abu Dhabi banks, monetary easing measures and higher public spending as part of fiscal stimulus plans. Kuwait on the other hand enforced five fiscal policy measures though it didn’t reflect a clear fiscal stimulus in the country. This was contributed by its low public spending where it remained relatively low. However, Kuwait rescued its nonperforming firms through equity purchases (The UAE Foreign Trade Analytical Report 2010).
Fiscal policy developments should be reflected in the key macroeconomic indicators of real GDP growth, GDP per capita, current account balances and inflation (Merza, Alawin and Bashayreh, 2012). Economic growth in UAE has improved substantially owing to the enforcement of various fiscal measures. Its Gross Domestic Product rose from USD 222.1 billion in 2006 to USD 314.6 billion in 2008. It further rose to USD 350.7 in the year 2010. This impressive improvement in GDP was attributed by the increase in the average oil prices. Furthermore, the UAE economies expanded towards non-oil economic sectors. This has helped the economy to withstand the economic crisis which has affected many economies worldwide. For instance, in 2010 its real GDP stood at 1.4% as opposed to the negative 1.6% which was experienced in the year 2009. This increase was majorly
a result of improved security and stability in the economy in the years and the increase in oil and gas production. Despite the growing situation in UAE, the implementation of these reforms and strengthening of the fiscal policy has been welcomed by the citizens of the Kingdom.[2] The economic policies of the UAE in recent years have helped in a positive way both through the improvement of its economy and its quality of life. Nevertheless, there remains a persistent gap in the policies of the Ministry of Finance and for the security of the local authorities that are the main obstacle in the implementation of these economic reforms. There are several factors that are behind the worsening situation. The following is a table of possible effects:
1. The growth in the real GDP was slow, growing at 2.4% but only at 0.5% in 2009.
2. The economy has been experiencing severe political instability for years
3. The state of emergency in the country during the period 2010-12-01 was due to the fact that security situation (the state and the military) in the country is worsening. The situation of unemployment among the citizens of Saudi Arabia is increasing as well as in the state of emergency. Although the situation of the people of Saudi Arabia has worsened from a situation of peace and stabilization, the public sector remains depressed due to the instability in the country of course. There is no reason why the public sector and financial sector cannot be maintained at normal level. Also for the period 2009-2010. The situation of the Arab public sector remains the same as in 2008 and 2005. However, it has experienced serious difficulties since 2009 despite the current situation which is aggravated in the Arab public sector while there is a political situation in the country.
4. The general situation in social security has weakened significantly. After a significant period of economic decline, welfare was reduced in the country from USD 2.1 billion in 2008 to USD 2.0 billion in 2009.[3]
5. The number of citizens of Saudi Arabia in poverty has increased from 7.8 million to 18.9 million compared with 5.6 million before the 2008 crisis.
6. The political situation is improving for a long time (5 years in 2008).
7. The economic fundamentals in the country remain much more strong for a period of 10 years than during the period of economic stagnation (15 years in 2008).
In addition, the country’s external affairs situation has improved substantially since 2009. The economy has been very positive as compared with the previous fiscal period. There are some exceptions:[4] the improvement in GDP was due in part to the construction of small and medium industry and the strengthening of the economic relationship of the Kingdom.[5]
4. Economic development (mainly, the development of the economy during the transition period) is under way in the country. Saudi Arabia and UAE enjoy strong economic relations which have been strengthened in part by political reform measures. The economy does not expect to remain static in the present situation. However, the situation in the country remains uncertain (i.e. it has experienced a period of decline since 2008). The Kingdom’s financial position remains stable at USD 1.1 trillion while the external relations situation is improving at USD 0.8 billion.
Sources :
Merza T, Merza A, Bashayreh E, Naim C,