The announcement of an expansionary budget for Dubai, with a significant allocation for infrastructure spending will support the view that growth will remain constructive over the coming years. 

 

“We forecast a real GDP expansion of 3.5% this year and 4.0% in 2025. Even with the rise in spending the budget balance is projected to remain in surplus, indicative of the equally strong growth expected in revenue collection as the economy expands and government income sources are increasingly diversified,” said Daniel Richards, Senior Economist, Emirates NBD Research.

 

Dubai’s three-year budget spanning 2025-27 has been approved by HH Sheikh Mohammed bin Rashid al Maktoum, Vice President and Prime Minister of the UAE. This allows for total expenditure of AED272 billion ($74 billion) over the three years and projects total revenue of AED302 billion, implying a budget surplus over the period. The budget is the largest recorded for Dubai.

 

Expansion in spending

Looking ahead to next year, AED86.3 billion of spending has been allocated. This would mark a 9% y/y expansion in spending in 2025 compared to the AED79.1 billion figure that was allocated for this year 12 months ago (actual spending data has not been released). 

 

This is somewhat slower than the 17% rise announced for 2024, which followed a 13% increase in 2023, but government spending is still expanding at a faster pace than inflation, indicating robust real growth. This is both reflective of, and supporting, the ongoing expansion of the economy as part of the Dubai Strategic Plan 2030, the Dubai Economic Agenda D33, and the Quality-of-Life Strategy 2033.

 

According to the Media Office statement, “Dubai remains focused on enhancing social services and improving the quality of life in key sectors such as health, education, culture, and infrastructure.’ Of next year’s planned spending, 46% is allocated to infrastructure investment and related construction projects including new roads and bridges, the Al Maktoum airport development, the new blue metro line, and a revamped water drainage network all of which are material transport projects and will both support economic growth in the near term, and help the emirate provide essential infrastructure for its projected 5.8 million population by 2040.”

 

Of the remainder of the budgeted spending, 30% will go on social development (which encompasses health, education, and scientific research), 18% on the security, justice, and safety sector, and the remaining 6% on supporting the public services sector. This will include advancements made in the digitalisation strategy which should both streamline experiences for government services customers while also reducing current spending costs for the government over the long term.

 

Revenue rise

On the other side of the equation, revenues are forecast at AED97.7 billion next year, which would mark an 8% rise on the projected figure for the current year. In past years the bulk of revenue (projected 56% last year) has come from fees and fines. This will include fees levied on real estate transactions, which we anticipate to have been particularly robust over the past several years and would expect to remain supportive in 2025 and beyond. Returns on government investments (projected 17% for this year) and VAT, excise tax and corporate tax (14%) have been the next two largest revenue generators. With the growth in the population, and the introduction of corporate income tax, we expect that this latter category will prompt increasingly rapid growth in income generation.

 

The Dubai government has also allocated a general reserve of AED5 billion to be put away each year over the current three-year cycle, to help preserve financial sustainability. The Dubai government projection is that the budget surplus will be equivalent to 4% of GDP next year. This will contribute to NBD’s forecast national budget surplus for the UAE of 2.4% next year, following a projected 3.0% in 2024.--TradeArabia News Service