Tax revenues fail to offset $4bn drop in UAE federal balance

Unsplash/Kamil Rogalinski

• UAE federal balance sheet dropped 38% in Q1 2023
• Tax income was up 12% to AED63.5 bn but other revenues fell
• Real GDP of the UAE grew 7.9% in 2022

The UAE federal government’s balance sheet decreased by nearly $4 billion, or 38 percent, year on year in the first quarter of 2023, even though tax revenues rose 12 percent.

Data from the UAE Government Finance Statistics Report for the first quarter of 2023, published on Tuesday by the UAE Ministry of Finance, found that total revenue in the first three months of the year amounted to AED115.6 billion ($31.5 billion).

Expenditure totalled AED92.5 billion and net operating balance was just under AED24 billion.

The UAE is made up of six emirates, the largest being Abu Dhabi and Dubai, and has a total population of 10 million people. Each emirate sets its own budget, while the ministry oversees strategic planning for the federal government.

• Taxing questions at the heart of the Dubai economic model
• UK helps UAE address financial grey list challenges
• Insights into the UAE-India love-in

Compared with the first quarter of 2022, total revenue declined AED8 billion, or 7 percent. This was despite tax revenues in the quarter totalling AED63.5 billion.

Other revenue, classed by the ministry as property income, sales of goods and services, fines and penalties, declined 22.5 percent year on year to AED48 billion.

Expenses rose 7.6 percent year on year during the quarter. Grants rose 86 percent to AED566 million and other expenses were up 214 percent to nearly AED12 billion.

Overall, this meant net operating balance for the government declined 38 percent year on year to AED23.9 billion, from AED38.6 billion in Q1 last year.

Younis Haji Al Khouri, undersecretary of the Ministry of Finance, said in a press statement: “These results reflect the efficiency of government expenditure and effective use of financial resources in directing them to priority strategic sectors.”

AGBI has approached the ministry for comment on the changes in the results.

The Central Bank of the UAE describes the emirates as “one of the fastest-growing economies in 2022”. Real GDP grew 7.9 percent last year, compared with 4.4 percent in 2021, as a result of a 7.2 percent increase in non-oil sector GDP and a 9.5 percent expansion in oil-sector GDP.

The IMF estimated last month that UAE GDP will grow by 3.6 percent this year. Non-hydrocarbon growth of 3.8 percent is expected to be driven by continued tourism activity and increased capital expenditure. 

“Continued close monitoring of financial stability risks and further strengthening of macroprudential frameworks is warranted, given the high level of nonperforming loans, tightening financial conditions, and banks’ exposures to the real estate sector,” the IMF nonetheless warned in its UAE report in June.