The United Arab Emirate's quarterly report reveals that the country will cut spending by 4.2 percent this year following an announcement last week that fuel subsidies will be canceled.
While most of the oil-rich Gulf countries have announced that their spending will remain high for the time being, the UAE has chosen to take a more cautious fiscal approach in the wake of low oil prices. Other Gulf nations have chosen to dig deep into their reserves to maintain spending while oil prices plummet.
Although the UAE also has significant reserve funds, the quarterly report shows that the emirates have planned to not only cut spending but also have anticipated incurring their first fiscal deficit since 2009 at 2.4 percent of gross domestic product, or 30.6 billion dirhams ($8.3 billion).
In addition to cutting subsidies, the UAE plans to cut funding for grants and to sharply slow the rise in employee compensation. Overall subsidies will be cut 34 percent and grant funding will drop 48 percent. Spending on employee compensation will increase only 3.4 percent this year.
The major spending cuts follow several years during which spending increased regularly at around 10 percent. All together spending is expected to drop around 20 billion dirhams from 480.8 billion dirhams last year to 460.6 billion dirhams.
New fuel prices are set to be announced Tuesday afternoon following last week's announcement of subsidy cuts. A committee has been created to ensure that the new pricing scheme is in line with international prices. Speculation suggests that while petrol prices will increase, diesel prices will actually decrease under the new regulations.
With the subsidies, the UAE's fuel prices were among the lowest in the world, however, other Gulf nations continue to subsidize fuel at much higher rates. The UAE formerly subsidized fuel at about $730 per resident per year while Qatar and Kuwait subsidize at well above $2,000 per year per resident.
For the time being, oil prices are expected to remain low, at less than $70 per barrel, until 2017. Thus, the UAE's cautious fiscal tactics will likely be emulated by fellow oil-rich Gulf nations unless they intend to empty their pockets completely.