Dubai Aims to Raise 2009 Public-Sector Spending 42%

By Arif Sharif and Glen Carey

Jan. 10 (Bloomberg) -- Dubai, home to the world’s biggest man-made islands and tallest building, will boost government spending 42 percent in 2009 to stoke the economy amid the deepening financial crisis.

The second-biggest of the seven states that make up the United Arab Emirates will also run up a budget deficit of 4.2 billion dirhams ($1.1 billion), its first ever, to buoy an economy forecast to grow by four to six percent this year, Nasser Bin Hassan al-Shaikh, director general of Dubai’s Department of Finance, told a news conference today. Infrastructure investment in 2009 will rise 33 percent, he said.

The spending “is enough to keep our economy growing,” although “inflation is going to drop” as expansion slows, al- Shaikh said.

Dubai’s economy surged at a compound annual rate of 13 percent between 2000 and 2006, supported by record-high oil prices, low interest rates and a real-estate boom helped by laws allowing foreigners to own property. Home prices, which jumped fourfold in the last five years, are now falling as the worldwide economy suffers the worst crisis since the 1930s Great Depression.

Spending Rises

Public spending by Dubai’s rulers will rise 42 percent to an estimated 37.7 billion dirhams this year, while revenue will increase 26 percent to 33.5 billion dirhams, the government said in a statement today. The deficit, estimated at 1.3 percent of 2007 gross domestic product, will be funded by borrowing or reserves.

About 22 percent of the government budget will be allocated to social services, 19 percent to the judiciary and the security department, 45 percent to the roads and transport authority and 14 percent to economic services, including tourism, civil aviation, and the oil sector, the statement said. Salaries for the government’s 70,000 employees will account for 30 percent of spending.

Overall public sector spending, including the budgets of wholly-owned government companies like Emirates Airlines and Dubai Aluminum, will increase 11 percent to 135 billion dirhams, while revenue will rise 4 percent to 138 billion dirhams, the government said.

Dubai’s Department of Finance is “keeping an eye on the capital markets” after raising 6.5 billion dirhams from bond sales last year, al-Shaikh said. The government can raise up to 15 billion dirhams under an existing euro medium-term note program. The emirate will also seek a credit rating mid-year, for which it’s being advised by JPMorgan Chase & Co. and UBS AG.

Dubai is redrawing a strategic plan that assumes annual economic growth of 11 percent until 2015, as “this is not achievable in the current environment,” al-Shaikh said. He estimated U.A.E.’s 2007 GDP at 301 billion dirhams.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.netGlen Carey in Dubai at gcarey8@bloomberg.net