Middle-east Arab News Opinion | Asharq Al-awsat

Defence, Remittances Bear Down on UAE Surplus | ASHARQ AL-AWSAT English Archive 2005 -2017
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ABU DHABI (AFP) – High oil revenues have ended an era of painful deficits for the United Arab Emirates, but high defence spending and outward remittances by expatriate workers continue to weigh heavily on the balance of payments.

Despite efforts to bring expenditures under control, defence spending still accounts for up to 20 percent of the UAE’s overall spending, Central Bank figures showed Saturday.

Cash remittances by Asians and other expatriates to their home countries have meanwhile remained as high as 17 percent of gross domestic product, according to the Abu Dhabi Chamber of Commerce and Industry.

In 2005, the UAE allocated 6.45 billion dollars to defence and security, which accounted for 19.4 percent of the actual spending of 33.3 billion dollars — a proportion thought to have been the same in 2006.

“High allocations for defence and security, besides growing remittances by foreigners, are putting pressure on the UAE’s balance of payments,” an Abu Dhabi bank manager said.

The balance of payments recorded its first surplus in nearly a decade in 2004 when it reached about 3.5 billion dollars, followed by 2.5 billion dollars in 2005, figures from the Central Bank showed.

The finance ministry expects another surplus in 2006.

The surplus in balance of payments — which measures payments that flow between any individual country and all other countries — was only a fraction of the country’s trade balance surplus of 46.3 billion dollars in 2005.

While the surge in oil prices sharply boosted the UAE’s revenues and economy, it only worsened the remittances problem as it encouraged expatriates to remit more funds.

From around 10.3 billion dollars in 2004, cash transfers made by the nearly 2.3 million expatriate workers in the UAE soared to 14 billion dollars in 2005, and were projected by the Abu Dhabi Chamber of Commerce and Industry to peak at about 16 billion dollars in 2006.

“Around 78 percent of those workers are Asian workers, most of whom are low income and unskilled labour. They remit home nearly 80 percent of their income as their spending in the UAE is restricted to essential needs,” the chamber said in a report last week.

The Central Bank figures showed that the balance of payments was under pressure from soaring imports, a high negative capital account, large remittances by foreigners, and net services, which cover government payments for imported services and goods.