10
ANNUAL REPORT 2015
T
The old adage that we live in a global
village cannot be reflected more strongly
than when we look at local finance. The
impact of the oil price decline, the hike in the
US Fed rate and the downturn in the Chinese
economy have all had an effect, and taken their
toll on the UAE local economy.
Oversupply through 2015 kept oil prices
consistently low, meaning USD 30 a barrel
became the new normal. Oil prices seemed
to have bottomed out in January 2016 at
under USD 28 a barrel and whilst many remain
cautiously optimistic prices will rally in 2016,
the consensus is that by mid-year, oil prices will
settle at around USD 50-60 per barrel.
This will certainly mean a fiscal deficit for the
UAE but due to the UAE's diversified economy,
high surplus of foreign reserves and lower
breakeven cost of oil production than other
Middle Eastern countries, the UAE is expected to
be able to contain the deficit with relative ease.
UAE fiscal position
In mid-June 2014, oil was selling at USD 114 a
barrel, declining dramatically in 2015 to end the
year at around USD 40 a barrel. As a hydrocarbon
exporter, the impact of such a revenue decline
cannot be minimised and this meant that for the
first time since 2009 the UAE experienced a
fiscal deficit.
Helping to minimize the fiscal deficit was the
removal of subsidies on petroleum products and
the linking of local retail prices to international
prices in July 2015. Over the year subsidies
were also withdrawn from water and electricity,
cutting the total amount spent on subsidies by
84 per cent compared to the previous year.
Therefore, the UAE has a favourable
macroeconomic outlook with total foreign
reserves of AED 341.1 billion, a diversified
economy and a swift response to structural
reforms when it came to deregulating petrol
and energy. Furthermore, the UAE is going to
implement VAT and from this expects to raise AED
12 billion in additional revenue, the equivalent to
1.3 per cent of 2015 non-oil GDP.
ECONOMIC DEVELOPMENTS
UAE ECONOMY
REMAINS STEADY
Millions of barrels per day
Hydrocarbon Production, Consumption and Exports 2000 to 2014 in UAE
