GREATER TRANSPARENCY FOR THE UAE BUDGET IN-LINE

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