US embassy cable - 03ABUDHABI2403

C O N F I D E N T I A L ABU DHABI 002403 
 
SIPDIS 
 
STATE FOR EB, NEA/ARP AND NEA/RA 
DOJ FOR T. GREENBERG 
COMMERCE PASS TO C. LOUSTAUNAU 
TREASURY PASS FEDERAL RESERVE 
NSC FOR J. MYERS 
 
E.O. 12958: DECL: 05/19/2008 
TAGS: ECON, EFIN, EINV, PGOV, TC 
SUBJECT: GREATER TRANSPARENCY FOR THE UAE BUDGET IN-LINE 
WITH IMF RECOMMENDATIONS 
 
REF: ABU DHABI 526 
 
1.  (U) Classified by Charge d'Affaires Richard A. Albright 
for reasons 1.5 (b) and (d). 
 
2.  (C) UAE Minister of State for Finance Dr. Mohammed 
Khalfan Khirbash forwarded the 2003-2005 federal budgets to 
the UAE Cabinet for approval 5/18, and announced that 
future budgets would be based on internationally accepted 
classification of fiscal revenues and expenditures.  In its 
last Article IV Consultation, the IMF urged the UAEG to 
adopt these standards in an effort to increase transparency 
and consistency in the UAE's budget process.  Khirbash 
acknowledged that previous UAE federal budgets -- based on 
the antiquated chapter system -- allocated a set amount of 
money to each ministry every fiscal year regardless of 
their actual requirements (see reftel).  The 2003 budget 
onward, however, will apportion money to ministries based 
on their programs, and require each ministry to justify 
monies spent. 
 
3.  (C) The UAEG undertook budget reform at the urging of 
the IMF and UNDP in December 2002, according to press 
reports.  The UAEG hired consulting firm KPMG to train 
Finance Ministry officials on internationally accepted 
accounting guidelines, and assist the Ministry to prepare 
the 2003 federal budget.  In February 2003, the Finance 
Ministry requested the other ministries to forward a 
"performance-based" budget taking into consideration 
upcoming programs during the fiscal year.  UNDP also held a 
number of workshops to train officials from the other 
ministries and federal institutions on how best to develop 
such a budget.  The final phase will require the UAEG to 
pass legislation codifying the new budget process. 
Khirbash estimates that it will take another six to eight 
months to complete the entire shift from the old budget 
system, and may take up to three years to work out all of 
the kinks. 
 
4.  (C) Comment: The lack of reliable, timely, and complete 
fiscal data for the UAE hampers economic analysis, and 
paints an inaccurate picture of the health of the economy. 
UAE fiscal data has suffered from incomplete coverage of 
fiscal accounts (such as investment income from ADIA's 
assets), off-budget activities, information on financing 
the budget, and double counting of some government 
activities.  Many expenditures are omitted from the budget, 
including transfers from Abu Dhabi to the northern emirates 
as well as aid transfers abroad.  Despite Khirbash's 
announcement, we're skeptical that the UAEG will completely 
open its books and reveal such sensitive information, but 
any modification to the UAEG bookkeeping in-line with IMF 
recommendations would be an improvement.  End comment. 
 
Albright