Identifier
Created
Classification
Origin
04ABUDHABI2930
2004-08-30 12:19:00
CONFIDENTIAL
Embassy Abu Dhabi
Cable title:  

SECURITY DOMINATES THE UAE FEDERAL BUDGET

Tags:  EFIN PGOV ECON MARR TC 
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Diana T Fritz 02/06/2007 11:43:55 AM From DB/Inbox: Search Results

Cable 
Text: 
 
 
C O N F I D E N T I A L ABU DHABI 02930

SIPDIS
CXABU:
 ACTION: ECON
 INFO: P/M DAO AMB DCM USLO POL
Laser1:
 INFO: FCS

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: AMB:MSISON
DRAFTED: ECON:OJOHN
CLEARED: DCM:RALBRIGHT, ECON:CMS, USLO:RSIMM, DAO:BKERINS

VZCZCADI036
RR RUEHC RUEHZM RUEATRS RHEFDIA RUEKJCS RUEOMCE
RHEHNSC
DE RUEHAD #2930/01 2431219
ZNY CCCCC ZZH
R 301219Z AUG 04
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 5707
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEFDIA/DIA WASHDC
RUEKJCS/SECDEF WASHDC
RUEOMCE/USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 002930 

SIPDIS


STATE FOR NEA/ARP, NEA/RA, EB/OMA
STATE PASS FEDERAL RESERVE
TREASURY FOR MILLS AND NUGENT

E.O. 12958: DECL:8/3/14
TAGS: EFIN PGOV ECON MARR TC
SUBJECT: SECURITY DOMINATES THE UAE FEDERAL BUDGET


Classified by Ambassador Michele Sison for reasons 1.5 (b
&d).

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 002930

SIPDIS


STATE FOR NEA/ARP, NEA/RA, EB/OMA
STATE PASS FEDERAL RESERVE
TREASURY FOR MILLS AND NUGENT

E.O. 12958: DECL:8/3/14
TAGS: EFIN PGOV ECON MARR TC
SUBJECT: SECURITY DOMINATES THE UAE FEDERAL BUDGET


Classified by Ambassador Michele Sison for reasons 1.5 (b
&d).


1. (C) Summary: Funding for security (including defense)
is the single largest portion of the 2004 federal budget
and makes up a full 43 percent of budgeted expenditures.
This figure does not include an unknown amount of other
defense spending that is directly paid by the Emirate of
Abu Dhabi. Although the lack of transparency in "who is
funding what and for how much," makes budget analysis
challenging, we are seeing a shift in emphasis in the UAE's
security spending from facing conventional external threats
like Iran to border security and counter terrorism. We can
also see how strongly the Emirate of Abu Dhabi dominates
the federal government as the controller of the "purse
strings." Abu Dhabi contributes the lion's share of the
funding for the federal budget and determines how much of
it is spent. Although UAE President Zayed ratified the
country's 2004 federal budget on August 22, 2004, it only
makes up a portion of the country's overall spending. The
strength of the federal government is largely dependent on
Abu Dhabi's support -- and willingness to pay for -- a
stronger federation. End Summary.

Abu Dhabi's Show
--------------


2. (C) UAE president Sheikh Zayed bin Sultan Al-Nahyan
ratified the federal budget on August 22, with spending set
at USD 6.5 billion and revenues at around USD 5.91 billion.
The appointed Federal National Council approved the budget
at the end of May and passed it to the rulers of the
various emirates for approval. Abu Dhabi Emirate plays a
much bigger role in total government spending than does the
federal government. Abu Dhabi's expenditures make up about
three quarters of the UAE's consolidated government
spending, which includes federal and emirate level
spending. Abu Dhabi contributes at least 55 percent of the
federal government's revenues. It also controls how much
of that money is spent. We understand that over half of

Abu Dhabi's contributions to the federal budget are counted
as "federal services," paid directly by the government of
Abu Dhabi but recorded on the federal budget. The federal
government has no control over how these federal services
are spent, or even if they are spent in the categories
reported. Ministry of Finance Assistant Under Secretary
for Revenue and Budget Khalid Al-Bustani (protect)
explained that Abu Dhabi tells the Ministry of Finance how
much it is spending in a certain budget item. The UAEG
never actually sees the money, but merely records the
spending in the federal budget. Adding further opacity,
Abu Dhabi also has budget outlays on national type projects
-- such as defense or assistance to the northern emirates -
- that are not recorded as federal expenses.

Defense Spending Stable, but Shifting Focus
--------------


3. (C) One of the largest items in the federal budget (USD
2.7 billion) is security and justice. We have heard that
between USD 1.6 billion and USD 2 billion is earmarked for
defense spending. We also understand that all new UAE
military acquisitions are considered off budget and that
the Emirate of Abu Dhabi also funds defense related
expenditures directly. According to Al-Bustani, defense
spending is not controlled by the UAEG. With the exception
of the salaries of the small Ministry of Defense, which
supports the titular Minister of Defense Sheikh Mohammed
bin Rashed Al-Maktoum (who has no role in day to day
decisions),Abu Dhabi pays all defense expenditures. The
Ministry of Finance officials tell us frankly that they do
not know how the money is used or what part of the total
defense bill it makes up.


4. (C) The sheer size of the security portion of the
federal budget indicates its importance to the UAE,
especially considering that the budget does not capture the
Emirate of Abu Dhabi's spending on defense. Security and
justice spending are up by less than three percent from the
2003 federal budget and we do not yet have a breakdown of
how much of that increase is defense related. We do
believe, from our conversations with UAE officials and U.S.
defense contractors, that the UAE has shifted its defense
priorities toward border security and counter terrorism.
For example, the UAE is building a wall on the border with
Oman and Saudi Arabia. It is looking for security and
surveillance packages for its land and sea borders and for
its offshore oil facilities. The UAE also moved about
5,000 troops from its land forces to the ministry of
interior for a frontier corps. All of these factors lead
us to believe that we are seeing a shift in the UAE's
security emphasis.

What little the Feds Control
--------------


5. (C) The federal budget makes up about a quarter of total
government spending. (Note: Because Abu Dhabi funds the
federal government, this figure represents some double
counting with Abu Dhabi's budget.) About 40 percent of the
federal government's revenues come from fees and from
profits on state owned enterprises like Etisalat. Al-
Bustani told EconChief that Etisalat was the federal
government's largest independent source of revenue. The
UAEG is not only the majority shareholder in Etisalat, but
also collects fees from what was a registered monopoly.
The announcement, therefore, that the UAEG was breaking
Etisalat's monopoly status caught several people by
surprise. The UAE subsequently announced that it would
hold a majority stake in any new telecom service provider,
probably to balance revenue concerns with efforts to
liberalize the sector.


6. (C) Al-Bustani said that the UAEG focused on the parts
of the budget that it did control, including education,
health, infrastructure, and salaries for civil servants.
The UAEG is working with the various ministries to ensure
that they abide by performance based budgeting to justify
their expenditures.

What does it mean?
--------------

7 (C) The UAE is the ultimate experiment in "state's
rights," with certain authorities and responsibilities
ceded to the federal government and others to the
individual emirates. Oil and gas revenues belong to the
individual emirates, not the federal government. As the
Emirate of Abu Dhabi owns 95 percent of the UAE's oil
reserves, it dominates the seven-emirate federation. The
federal government has the second largest budget in the
UAE, but very few independent sources of income. Funding
constraints keep the federal government weak compared to
the Emirate of Abu Dhabi. In the last 5 years, federal
revenues have only increased from USD 5.5 billion to USD
5.9 billion and spending has only increased by about a
billion dollars. The UAEG and its spending, do play a
vital role in strengthening the federation. This is
largely, however, because Abu Dhabi supports a stronger
federation, and is willing to pay for it. Abu Dhabi earns
and spends more money than the other six emirates combined,
spending much of that on "federal" issues.

Sison