Dubai 2021 budget and GDP estimates

The Dubai government has approved a budget of AED 57.1bn (USD 15.5bn) for 2021 with an estimated deficit of AED 4.8bn (USD 1.3bn).

To put this in context, the original 2020 budget was approved with AED 66.4bn in spending, but this was revised during the course of the year to take into account the impact of the coronavirus pandemic on both revenue and expenditure.  The revised budget showed total expenditure of AED 56.2bn and a deficit of AED 11.9bn.

The 2021 budget therefore makes a provision for a 1.7% increase in total expenditure next year, with wages, social subsidies & transfers and spending on goods and services all set to rise.  According to the press release, 9% of total spending (AED 5.1bn) has been allocated to investment spending, which implies a slight decline from the revised 2020 budget.  Interest expenses will also increase next year.

Revenues are expected to recover in 2021 as activity normalizes.  Total revenue is projected at AED 52.3bn in 2021, almost 70% of which is non-tax (fee income, investment income and oil & gas income). Tax income is forecast to rise by around 6% next year, but this would still leave it below 2018 levels.

As a result of revenue rising by more than expenditure in 2021, the deficit is expected to narrow to AED 4.8bn. 

Dubai budget estimates 2017-2021

Source: Dubai Media Office, Bloomberg, Emirates NBD Research

Last week the Dubai government said it expected GDP to shrink by -6.2% in 2020 before recovering 4% in 2021.  The press release cited figures from the Dubai Statistics Centre (DSC) which showed the economy contracted -10.8% in H1 2020. The full data set is not yet available from the DSC. If we assume there was no revision to the Q1 2020 GDP estimate of -3.5%, this implies a contraction of -18.0% y/y in Dubai’s economy in Q2 2020, with transport & logistics, hotels & restaurants and wholesale & retail trade (unsurprisingly) particularly hard hit in the second quarter. 

The PMI survey data suggests that there was a modest recovery in Q3, although the surge in coronavirus cases globally - and subsequent re-imposition of restrictions on movement and activity – likely weighed on activity in Q4.  Indeed the Dubai PMI fell to 49.0 in November, the lowest reading since May 2020.       

Dubai quarterly GDP growth and PMI

Source: Haver Analytics, Dubai Media Office, IHS Markit, Emirates NBD Research

Looking ahead, there are reasons for optimism – Dubai has begun rolling out Covid-19 vaccines in the last week, and as the vaccination programmes in other countries continue, we can expect restrictions in the UK, Europe and elsewhere to start being eased again in Q1 2020.  With the global economy likely to rebound from the second quarter next year, the outlook for Dubai’s transport, logistics and hospitality sectors looks brighter as well. 

Dubai and the UAE have also implemented/ approved a number of structural reforms this year which should start to yield some benefits in 2021, including allowing foreign investors to own 100% of onshore companies in some sectors and new more flexible visa regulations. The new agreement with Israel has already led to an estimated 50,000 visitors from there, which has helped to offset the decline in visitor numbers from traditional markets. Finally, Dubai’s Expo2020 is set to go ahead from October 2021, which should spur the recovery in tourism to the emirate in the second half of next year. 

Nevertheless, we are cognizant that downside risks to this outlook remain significant.  These include a slower rollout of vaccines globally (especially in emerging economies); a lack of further fiscal stimulus - or moves to tighten fiscal policy too soon - which could undermine the recovery in developed economies; the rate at which travel and tourism will recover to pre-pandemic levels; and the extent to which some of the changes in behavior that we have seen during the pandemic remain permanent.  We retain our 3% GDP growth forecast for Dubai in 2021 for now.