## _wp11147

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---

### I. INTRODUCTION
- Procyclical fiscal policies and the build-up of contingent liabilities during the boom years exacerbated the severity of the crisis.
- The U.A.E. experienced an unraveling of macro-financial imbalances in a hydrocarbon-exporting, sub-nationally diversified economy.
- Key dynamics:
  - Pegged exchange rate regime limits scope for monetary policy, placing stabilization burden on fiscal policy.
  - Procyclical fiscal policies prior to the crisis reinforced the “financial accelerator” effect.
  - Bursting of the real estate bubble in Dubai raised concerns over public finance sustainability and risks from government-related enterprises (GREs).
  - Crisis exposed contingent liabilities, implicit government guarantees, moral hazard in a federal system with asymmetric resource distribution, and lack of policy coordination among government layers.
- Paper objectives and structure:
  - Analyze fiscal policy in the run-up to and after the crisis.
  - Suggest measures to strengthen fiscal policy management in the U.A.E.
  - Sections: institutional features of fiscal federalism; methodology for decomposing non-hydrocarbon GDP and estimating cyclically adjusted non-hydrocarbon primary budget balance; fiscal sustainability analysis at national and sub-national levels (Abu Dhabi and Dubai); policy lessons and rule-based framework.
- Key numeric point:
  - After a decade-long above-trend expansion at an annual real GDP growth rate of 7 percent between 1999 and 2008, the U.A.E. economy is estimated to have contracted by 2.6 percent in 2009.

### II. FISCAL FEDERALISM IN THE U.A.E.
- Institutional features:
  - Confederation of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umn al-Qaiwain.
  - Constitution grants each emirate autonomy over matters not assigned to the federal government; natural resources and wealth in each emirate are public property of that emirate.
  - Each emirate manages its own budget independently; no emirate is obligated to contribute to another emirate’s budget.
  - Monetary and exchange rate policy is managed federally by the Central Bank of the U.A.E. (CBU); fiscal policy at emirate level is not under federal constitutional authority.
- Fiscal relationships and capacity:
  - Federal government lacks an independent fiscal base and remains dependent on transfers from Abu Dhabi.
  - Abu Dhabi and Dubai make agreed contributions to the federal budget; Abu Dhabi separately funds security and defense.
- Size and responsibilities of the federal budget:
  - Federal budget is about 4 percent of GDP and accounts for 11 percent of total public expenditure in the U.A.E.
  - Federal government accounts for 11 percent of all government spending in the U.A.E. and about 10 percent of revenues in the consolidated budget.
  - Federal responsibilities include foreign affairs, security and defense, nationality and immigration, public health, postal, telephone and other communications services, labor relations, banking, delimitation of territorial waters, and extradition of criminals.

### III. MEASURING THE FISCAL STANCE
- Rationale:
  - Cyclically adjusted non-hydrocarbon primary balance is the appropriate measure of the fiscal stance in a hydrocarbon-based economy.
  - Headline fiscal balance is highly correlated with oil prices; volatility in oil prices can misrepresent underlying fiscal position.
  - Primary budget balance excluding interest payments and resource-based revenue including investment income of the sovereign wealth fund better indicates underlying fiscal stance.
  - Expressed as a percentage of non-hydrocarbon potential GDP, reflecting revenues and expenditures adjusted for the economic cycle.
- Definitions:
  - Fiscal policy is expansionary when the change in the cyclically-adjusted non-hydrocarbon primary balance is negative; contractionary when it is positive.
  - Procyclical policy: expansionary (contractionary) when the change in the output gap is positive (negative).
  - Countercyclical policy: expansionary (contractionary) when the change in the output gap is negative (positive).

### III.A ESTIMATION METHODOLOGY
- Decomposition approach:
  - Potential and cyclical components of GDP extracted using the Hodrick-Prescott (HP) filter.
  - HP filter smoothing parameter adopted: λ = 100.
  - End-point problem addressed by extending the GDP series with projections through 2016.
- Uncertainty considerations:
  - Output gap estimates are subject to uncertainty in an economy with a perfectly elastic labor supply and when expatriate workers account for about 90 percent of the workforce.
  - Boom-driven increase in estimated potential non-hydrocarbon GDP during 2003–08 may reflect easy credit and the real estate bubble rather than sustainable productivity gains.
- Cyclical adjustment specifics:
  - Cyclically adjusted non-hydrocarbon primary balance excludes interest spending, hydrocarbon revenues, and investment income of the sovereign wealth fund, scaled by non-hydrocarbon GDP.
  - Aggregate elasticities used: non-hydrocarbon revenues elasticity with respect to the output gap = 1; primary expenditures elasticity with respect to the output gap = 0.
  - Limitation: GRE quasi-fiscal activities not included due to data limitations.
- Key numeric points:
  - Hodrick-Prescott filter smoothing parameter adopted: λ = 100.
  - Expatriate workers account for about 90 percent of the workforce.
  - Average annual consumer price inflation: 2.9 percent in 2002; 12.3 percent in 2008; 1.6 percent in 2009; 0.9 percent in 2010.

### III.B CONSOLIDATED FISCAL STANCE (U.A.E.)
- Consolidated dynamics and cyclicality:
  - Overall fiscal balance: deficit of 2.1 percent of GDP in 2002; surplus of 11.8 percent (average) between 2003 and 2008 (driven by hydrocarbon revenues).
  - Non-hydrocarbon primary balance (excluding investment income) deteriorated from a deficit of 16.5 percent of non-hydrocarbon GDP in 2005 to a deficit of 26.7 percent by 2008.
  - Cyclically adjusted non-hydrocarbon primary deficit: 16.9 percent in 2005; 28.1 percent in 2008; 44.8 percent in 2009; 35.1 percent in 2010.
  - Fiscal impulse (change in cyclically-adjusted non-hydrocarbon primary balance as share of non-hydrocarbon potential GDP): 11.3 percentage points over 2005–08.
  - Policy stance: procyclical prior to the crisis; expansionary countercyclical in 2009; contractionary in 2010.

### III.C ABU DHABI (summary)
- Role and fiscal dominance:
  - Abu Dhabi accounts for almost 70 percent of government revenues and dominates the U.A.E.’s consolidated fiscal position.
  - Controls more than 95 percent of the country’s hydrocarbon reserves, providing abundant fiscal space relative to other emirates.
- Abu Dhabi fiscal balances and cyclicality:
  - Non-hydrocarbon primary balance (excluding investment income) widened from a deficit of 42.2 percent of Abu Dhabi non-hydrocarbon GDP in 2005 to a deficit of 61.4 percent in 2008.
  - Government boosted primary spending by 39.4 percent in 2009, pushing the non-hydrocarbon primary budget deficit to 79.3 percent of non-hydrocarbon GDP in 2009.
  - Government loan to the Emirate of Dubai accounted for 6.8 percent of total spending or 3.1 percent of Abu Dhabi non-hydrocarbon GDP in 2009.
  - Cyclically adjusted non-hydrocarbon primary deficit, excluding investment income, widened from 42.7 percent in 2005 to 63.8 percent by 2008, implying a fiscal impulse of 21 percentage points of non-hydrocarbon potential GDP prior to the crisis.
  - After the crisis, an additional fiscal impulse of 17.8 percentage points led the cyclically-adjusted non-hydrocarbon primary deficit to an estimated 81.6 percent in 2009.
  - High share of GREs in Abu Dhabi’s total public sector debt—about 90 percent—implies the fiscal impulse would be even greater if non-commercial GRE spending were accounted for.
  - Fiscal stance: forcefully procyclical after 2006; turned countercyclical in 2009; in 2010 fiscal policy turned contractionary, with the cyclically-adjusted non-hydrocarbon primary deficit narrowing by 10.7 percentage points to 70.9 percent of Abu Dhabi non-hydrocarbon GDP.
- Fragmented numeric snippet:
  - 11.2 percent of Abu Dhabi GDP in 2002 to a surplus of 12.7 percent, on average, between [text truncated in source].

### III.C DUBAI: STRUCTURE, FISCAL SPACE, AND CYCLICALITY
- Economic structure and vulnerabilities:
  - Non-hydrocarbon sectors represent over 95 percent of Dubai GDP.
  - Dependency on real estate-related sectors; limited fiscal diversification; slower revenue mobilization compared to other diversified emerging market economies.
- Fiscal balances and cyclicality:
  - Overall fiscal balance: surplus of 0.1 percent of Dubai and northern emirates GDP in 2001; deficit of 1.8 percent in 2008; deficit of 13.9 percent in 2009.
  - Non-hydrocarbon primary balance worsened from a deficit of 1.2 percent of Dubai and northern emirates non-hydrocarbon GDP in 2005 to a deficit of 4 percent in 2008 and 18.5 percent in 2009.
  - Cyclically-adjusted non-hydrocarbon primary deficit widened from 1.3 percent in 2005 to 5.1 percent in 2008; fiscal impulse amounted to 3.8 percentage points on a cumulative basis.
  - GREs: share of GRE debt in total public sector debt—more than 70 percent—suggests substantial off-budget spending through GREs.
  - Fiscal stance: expansionary and procyclical prior to the crisis; cyclically adjusted non-hydrocarbon primary deficit widened to 19.2 percent in 2009.
  - Post-crisis countercyclical shift in 2009 enabled by financial support from Abu Dhabi and the CBU, which accounted for 45 percent of total government spending—and 9.6 percent of Dubai non-hydrocarbon GDP—in 2009.
  - In 2010 Dubai’s fiscal policy became contractionary, with the cyclically adjusted non-hydrocarbon primary deficit narrowing by 13.4 percentage points to 5.8 percent of non-hydrocarbon GDP.

### FISCAL SUSTAINABILITY: AGGREGATE AND EMIRATE-LEVEL FINDINGS
- Public debt dynamics (U.A.E. aggregate, gross government debt excluding domestic bank loans to government):
  - Increased from 3.6 percent of GDP in 2007 to 6.6 percent in 2008 and 15.8 percent in 2010.
- Permanent income hypothesis results and assumptions:
  - Assumed parameters: real rate of return on assets 4 percent; inflation 2 percent; population growth of U.A.E. nationals 1.5 percent; hydrocarbon reserves depleted by 2082; oil price projected at $96.8 per barrel in 2016 and constant thereafter.
  - U.A.E. non-hydrocarbon primary budget deficit estimated to be 4 percentage points of GDP higher than its equilibrium value in 2011, with the gap at 3.9 percentage points by end-2016.
  - Excluding development spending that may yield a return equal to the discount rate, the non-hydrocarbon primary deficit is estimated to be 2.9 percentage points of GDP below its equilibrium value in 2011 and 2.8 percentage points below by 2016.
- Emirate-level (disaggregated) findings:
  - Abu Dhabi: non-hydrocarbon primary deficit estimated to be 24.6 percentage points of GDP higher than its equilibrium value in 2011, narrowing to 21 percentage points by end-2016.
  - Excluding development spending, Abu Dhabi’s non-hydrocarbon primary deficit is 16.4 percentage points of GDP above equilibrium in 2011 and about 12 percentage points above by end-2016.
  - Policy implication for Abu Dhabi: despite abundant fiscal space over the medium term, government spending should be moderated to maintain long-term sustainability and intergenerational equity.

### DUBAI: DEBT, CONTINGENT LIABILITIES, AND SCENARIOS
- Debt and contingent risk levels:
  - Gross government debt (including government guarantees but excluding domestic bank loans) increased from 1.6 percent of Dubai and northern emirates GDP in 2007 to 10.3 percent in 2008 and 34 percent as of end-2010.
  - Dubai’s publicly-held debt: US$113 billion (or 102.5 percent of Dubai and northern emirates GDP), with only US$36 billion belonging to the government.
  - At least US$11 billion of contingent risk forecast for Dubai by end-2016, with more than 70 percent of these liabilities coming due in 2011-12.
  - Accounting for these contingent risks would raise total debt-to-GDP to 47.4 percent in 2012 (compared to 34.6 percent for the government alone).
  - Including all maturing GRE debt as a contingent liability would raise Dubai’s total public sector debt to 62.5 percent of Dubai and northern emirates GDP as of end-2012.
  - Including all maturing quasi-sovereign debt would raise Dubai’s total public sector debt to 88.6 percent of GDP by end-2016 projection period.
- Debt sustainability projections:
  - Baseline with gradual fiscal consolidation: Dubai’s government debt estimated to increase to 41 percent of GDP by end-2016.
  - Without fiscal consolidation (no policy change compared to 2005-09): projected to reach 53 percent by 2016.
  - Including estimated contingent liabilities with baseline fiscal adjustment: total debt-to-GDP would increase to 54.3 percent by end-2016.
  - Including estimated contingent liabilities without fiscal consolidation: 62.5 percent by end-2016.
- Contingent-liability drivers and caveats:
  - Estimates are minimum levels of contingent risk because profitable companies may deteriorate, non-listed entities may be registering losses, liabilities may exceed publicly-held debt, and sovereign support may require capital injections.
  - Net impact on the sovereign balance sheet might be somewhat lower when assets are accounted for.
- Narrow revenue base and constraints:
  - Debt service ratio (interest payments as a share of GDP): 0.6 percent of GDP in 2008; 2.1 percent in 2010; estimated approximately 3 percent by 2016.
  - Primary budget balance: deficit of 2.9 percent of GDP in 2010; projected baseline deficit of 1.6 percent of GDP by 2016.
  - Including estimated contingent liabilities: total debt service ratio would rise to 3.7 percent of GDP by end-2016.
  - Tax revenues: custom duties and income tax on foreign banks; custom duties account for more than 82 percent of total tax revenues.
  - Broadening the revenue base (e.g., value-added tax) requires a national initiative.
  - With limited scope for revenue mobilization, fiscal consolidation needs to take place on the expenditure side.

### ABU DHABI: GREs AND CONTINGENT LIABILITIES
- Abu Dhabi publicly-held government debt: about 6 percent of Abu Dhabi GDP.
- Including outstanding GRE debt raises it to 54.8 percent of Abu Dhabi GDP.
- GRE debt outstanding: over US$92.4 billion.
- Assuming GRE debt in the real estate sector and GREs reporting losses imply contingent liability, at least US$9 billion of contingent risk can be foreseen for Abu Dhabi by end-2016, with more than half of that debt coming due in 2011-12.
- Recent GRE bailouts have bolstered implicit bailout expectations.

### MACROECONOMIC CONCLUSIONS ON PROCYCLICALITY AND FISCAL FEDERALISM
- Fiscal stance:
  - Procyclical at consolidated and sub-national levels prior to the crisis; turned countercyclical after the crisis in 2009.
  - Authorities raised the cyclically adjusted non-hydrocarbon primary budget deficit in 2009; in 2010 fiscal policy turned contractionary.
- Sub-national divergence:
  - Sustainability of public debt is not an immediate issue for the U.A.E. as a whole, but considerable differences exist at the sub-national level due to build-up of contingent liabilities.
  - High degree of decentralization with insufficient policy coordination weakens aggregated macroeconomic management.
- Recommendation:
  - Closer policy coordination and institutional rethinking of fiscal federalism are needed to strengthen fiscal performance and safeguard macro-financial stability.

### FISCAL RULES AND INSTITUTIONAL REFORMS (POLICY RECOMMENDATIONS)
- General recommendations:
  - Enhance fiscal transparency with adoption of legally-anchored fiscal rules (procedural and numerical limits on fiscal aggregates).
  - Rules can be implemented at consolidated and/or sub-national levels; design should be country-specific.
- Rule options and trade-offs:
  - Overall budget balance rule:
    - Easy to implement and monitor.
    - Ceiling on overall fiscal deficit can be procyclical in a hydrocarbon-based economy.
    - Ceiling on non-hydrocarbon deficit offers a better alternative and reduces procyclicality.
  - Expenditure rule:
    - Operationally simple; ceiling on nominal or real expenditure growth provides clear guidance.
    - Requires a reliable medium-term framework to avoid built-up deficits and deterioration in net asset position.
  - Structural balance rule:
    - Preeminent option but operationally challenging.
    - Cyclically-adjusted non-hydrocarbon fiscal deficit rule avoids procyclical policies and ensures sustainability but requires reliable output gap estimates.
  - Debt brake mechanism:
    - Constrains debt-to-GDP ratio to safeguard fiscal solvency.
    - At emirate level, including quasi-sovereign debt, would prevent off-balance-sheet transfers and trigger automatic adjustment when cumulative deviation of overall fiscal deficit or GRE borrowing exceeds a target threshold, while retaining countercyclical properties.
- Emirate-specific measures:
  - Sub-national fiscal rules accommodating emirate-level structures and capabilities, plus a clear and credible fiscal transfer mechanism (or a credible “no bailout” clause) would help avoid moral hazard.
  - Emirate-specific fiscal rules with debt brake mechanisms impose high costs on non-compliance and de-politicize enforcement.
- Fiscal coverage and transparency enhancements:
  - Broaden coverage of fiscal accounts to include broader public sector where GREs perform non-commercial functions on behalf of government.
  - Timely fiscal reporting using a harmonized classification system.
  - Debt management offices should have dedicated units collecting frequent data on outstanding GRE liabilities, maturity profiles, income and cash-flow statements, and assessing potential contingent liabilities.
  - Consider including a statement of fiscal risks as part of annual budget documents focusing on GRE-related fiscal risks.

### KEY PROJECTIONS, TABLES, AND ASSUMPTIONS (SELECTED FIGURES)
- Baseline public sector debt (% of GDP), 2007–2016:
  - 2007: 1.6
  - 2008: 10.3
  - 2009: 32.4
  - 2010: 34.0
  - 2011: 32.9
  - 2012: 34.6
  - 2013: 36.1
  - 2014: 37.4
  - 2015: 39.0
  - 2016: 41.0
- Change in public sector debt (percentage points):
  - 2007: 1.6
  - 2008: 8.6
  - 2009: 22.2
  - 2010: 1.6
  - 2011: -1.2
  - 2012: 1.7
  - 2013: 1.5
  - 2014: 1.3
  - 2015: 1.6
  - 2016: 2.0
- Identified debt-creating flows (4+7+12) (% of GDP):
  - 2007: 0.2
  - 2008: 1.0
  - 2009: 15.3
  - 2010: 2.4
  - 2011: -4.4
  - 2012: 2.0
  - 2013: 2.3
  - 2014: 1.9
  - 2015: 2.0
  - 2016: 2.3
- Primary deficit (% of GDP):
  - 2007: 0.2
  - 2008: 1.2
  - 2009: 12.9
  - 2010: 2.9
  - 2011: -0.9
  - 2012: 1.2
  - 2013: 1.4
  - 2014: 1.4
  - 2015: 1.5
  - 2016: 1.6
- Revenue and grants (% of GDP):
  - 2007: 6.6
  - 2008: 7.5
  - 2009: 10.6
  - 2010: 10.8
  - 2011: 10.7
  - 2012: 8.2
  - 2013: 7.8
  - 2014: 7.5
  - 2015: 7.1
  - 2016: 6.8
- Primary (noninterest) expenditure (% of GDP):
  - 2007: 6.8
  - 2008: 8.7
  - 2009: 23.5
  - 2010: 13.7
  - 2011: 9.8
  - 2012: 9.4
  - 2013: 9.2
  - 2014: 8.9
  - 2015: 8.7
  - 2016: 8.4
- Automatic debt dynamics (% of GDP):
  - 2007: 0.0
  - 2008: -0.2
  - 2009: 2.4
  - 2010: -0.5
  - 2011: -3.5
  - 2012: 0.8
  - 2013: 0.9
  - 2014: 0.5
  - 2015: 0.5
  - 2016: 0.6
- Contribution from real interest rate (% of GDP):
  - 2007: 0.0
  - 2008: -0.2
  - 2009: 2.1
  - 2010: -0.4
  - 2011: -2.7
  - 2012: 1.9
  - 2013: 2.3
  - 2014: 1.9
  - 2015: 2.0
  - 2016: 2.2
- Contribution from real GDP growth (% of GDP):
  - 2007: 0.0
  - 2008: 0.0
  - 2009: 0.3
  - 2010: -0.2
  - 2011: -0.8
  - 2012: -1.1
  - 2013: -1.3
  - 2014: -1.4
  - 2015: -1.5
  - 2016: -1.6
- Residual, including asset changes (% of GDP):
  - 2007: 1.4
  - 2008: 7.6
  - 2009: 6.8
  - 2010: -0.7
  - 2011: 3.2
  - 2012: -0.3
  - 2013: -0.8
  - 2014: -0.6
  - 2015: -0.4
  - 2016: -0.3
- Public sector debt-to-revenue ratio:
  - 2007: 24.9
  - 2008: 137.1
  - 2009: 306.6
  - 2010: 315.5
  - 2011: 307.7
  - 2012: 421.0
  - 2013: 462.7
  - 2014: 500.4
  - 2015: 547.6
  - 2016: 601.1
- Gross financing need:
  - Percent of GDP:
    - 2007: 0.5
    - 2008: 2.6
    - 2009: 20.2
    - 2010: 21.2
    - 2011: 18.2
    - 2012: 19.1
    - 2013: 20.8
    - 2014: 25.5
    - 2015: 21.7
    - 2016: 23.1
  - In billions of U.S. dollars:
    - 2007: 0.6
    - 2008: 3.1
    - 2009: 21.1
    - 2010: 22.4
    - 2011: 20.9
    - 2012: 23.3
    - 2013: 27.2
    - 2014: 35.8
    - 2015: 32.8
    - 2016: 37.5
- Key macro and fiscal assumptions:
  - Real GDP growth (percent): 2007: 18.1; 2008: 3.2; 2009: -2.4; 2010: 0.5; 2011: 2.8; 2012: 3.4; 2013: 4.1; 2014: 4.2; 2015: 4.4; 2016: 4.4
  - Average nominal interest rate on public debt (percent): 2007: 6.4; 2008: 4.3; 2009: 6.5; 2010: 6.9; 2011: 7.7; 2012: 7.9; 2013: 7.7; 2014: 7.1; 2015: 7.7; 2016: 8.3
  - Average real interest rate (percent): 2007: -2.7; 2008: -11.5; 2009: 17.8; 2010: -1.3; 2011: -9.0; 2012: 6.1; 2013: 7.0; 2014: 5.7; 2015: 5.7; 2016: 6.2
  - Inflation rate (GDP deflator, percent): 2007: 9.1; 2008: 15.8; 2009: -11.3; 2010: 8.2; 2011: 16.7; 2012: 1.8; 2013: 0.7; 2014: 1.4; 2015: 2.0; 2016: 2.1
  - Growth of real primary spending (deflated by GDP deflator, percent): 2007: 40.2; 2008: 23.8; 2009: 167.8; 2010: -45.4; 2011: -33.6; 2012: 0.3; 2013: 3.7; 2014: 3.2; 2015: 2.3; 2016: 2.6

### ALTERNATIVE SCENARIOS AND BOUND TESTS (SELECTED OUTCOMES)
- Alternative scenarios (debt-to-GDP ratios sequence across projection horizon, selected results):
  - A1. No policy change (constant primary balance) in 2005-09: Sequence: 34.0, 36.7, 40.3, 43.5, 46.4, 49.5, 52.9
  - A2. Government plus potential contingent liabilities: Sequence: 34.0, 37.0, 47.4, 48.2, 50.7, 51.7, 54.3
  - A3. Government plus 100 percent of maturing GRE debt: Sequence: 34.0, 47.4, 62.5, 64.6, 65.7, 70.4, 88.6
- Bound tests (debt-to-GDP ratios under stress variants):
  - B1. Real interest rate at historical average plus one standard deviation: Sequence: 34.0, 34.2, 37.5, 40.8, 44.0, 47.6, 51.8
  - B2. Real GDP growth at historical average minus one standard deviation: Sequence: 34.0, 33.3, 36.2, 39.6, 43.3, 48.0, 53.6
  - B3. Primary balance at historical average minus one standard deviation: Sequence: 34.0, 35.0, 38.9, 42.7, 46.2, 50.0, 54.3
  - B4. Combination of B1-B3 using 1/2 standard deviation shocks: Sequence: 34.0, 34.9, 39.3, 43.7, 47.9, 52.7, 58.1
  - B5. One time 30 percent real depreciation in 2006: Sequence: 34.0, 59.6, 62.0, 64.3, 66.0, 67.9, 70.4
  - B6. 10 percent of GDP increase in other debt-creating flows in 2006: Sequence: 34.0, 42.9, 44.8, 46.7, 48.1, 49.8, 52.0

### SUMMARY OF KEY POLICY IMPLICATIONS
- Need for fiscal consolidation to ensure long-term sustainability and improve intergenerational distribution of hydrocarbon wealth.
- Moderate government spending in Abu Dhabi despite medium-term fiscal space to preserve long-term sustainability and intergenerational equity.
- Account for GREs and quasi-fiscal activities in fiscal assessment and debt metrics, given large shares of public sector debt and contingent liabilities in both Abu Dhabi and Dubai.
- Adopt disaggregated, emirate-level fiscal sustainability assessments given fiscal decentralization and asymmetric resource endowments.
- Strengthen fiscal transparency, broaden fiscal coverage to include GREs performing non-commercial functions, and establish debt management units to monitor GRE liabilities and fiscal risks.

*Extracted from the provided IMF chapter content.*

### References .............................................................................................................

### _wp11147 - References

### I. INTRODUCTION
- Procyclical fiscal policies and the build-up of contingent liabilities during the boom years exacerbated the severity of the crisis.
- The U.A.E. experienced an unraveling of macro-financial imbalances, making it a case to analyze underlying fragilities in a hydrocarbon-exporting, sub-nationally diversified economy.
- Key dynamics highlighted:
  - Pegged exchange rate regime limits scope for monetary policy, placing stabilization burden on fiscal policy.
  - Procyclical fiscal policies prior to the crisis reinforced the “financial accelerator” effect and contributed to economic and financial vulnerabilities.
  - Bursting of the real estate bubble in Dubai raised concerns over public finance sustainability and risks from government-related enterprises (GREs).
  - Crisis exposed contingent liabilities, implicit government guarantees, moral hazard in a federal system with asymmetric resource distribution, and lack of policy coordination among government layers.
- Paper objectives and structure:
  - Analyze fiscal policy in the run-up to and after the crisis.
  - Suggest measures to strengthen fiscal policy management in the U.A.E.
  - Sections: II (institutional features of fiscal federalism), III (methodology for decomposing non-hydrocarbon GDP and estimating cyclically adjusted non-hydrocarbon primary budget balance), IV (fiscal sustainability analysis at national and sub-national levels: Abu Dhabi and Dubai), V (policy lessons and rule-based framework to enhance coordination and fiscal sustainability).

*Key numeric points from introduction:*
- After a decade-long above-trend expansion at an annual real GDP growth rate of 7 percent between 1999 and 2008, the U.A.E. economy is estimated to have contracted by 2.6 percent in 2009.

---

### II. FISCAL FEDERALISM IN THE U.A.E.
- Institutional features:
  - The U.A.E. is a confederation of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umn al-Qaiwain.
  - The constitution grants each emirate autonomy over matters not assigned to the federal government and considers natural resources and wealth in each emirate to be public property of that emirate.
  - Each emirate manages its own budget independently; no emirate is obligated to contribute to another emirate’s budget.
  - Monetary and exchange rate policy is managed federally by the Central Bank of the U.A.E. (CBU), while fiscal policy at the emirate level is not under federal constitutional authority.
- Fiscal relationships and fiscal capacity:
  - The federal government lacks an independent fiscal base and remains dependent on transfers from Abu Dhabi.
  - Abu Dhabi and Dubai make agreed contributions to the federal budget; Abu Dhabi separately funds security and defense.
- Size and responsibilities of the federal budget:
  - The federal budget is about 4 percent of GDP and accounts for 11 percent of total public expenditure in the U.A.E.
  - The federal government accounts for 11 percent of all government spending in the U.A.E. and about 10 percent of revenues in the consolidated budget.
  - Federal responsibilities include foreign affairs, security and defense, nationality and immigration, public health, postal, telephone and other communications services, labor relations, banking, delimitation of territorial waters, and extradition of criminals.

---

### III. MEASURING THE FISCAL STANCE
- Rationale for metric:
  - The cyclically adjusted non-hydrocarbon primary balance is the appropriate measure of the fiscal stance in a hydrocarbon-based economy.
  - Headline fiscal balance is highly correlated with oil prices in the U.A.E.; volatility in oil prices can misrepresent underlying fiscal position.
  - The primary budget balance—excluding interest payments and resource-based revenue including investment income of the sovereign wealth fund—better indicates underlying fiscal stance.
  - Cyclically adjusted non-hydrocarbon primary balance is expressed as a percentage of non-hydrocarbon potential GDP, reflecting revenues and expenditures adjusted for the economic cycle.
- Definition of fiscal policy actions:
  - Fiscal policy is expansionary when the change in the cyclically-adjusted non-hydrocarbon primary balance is negative; contractionary when it is positive.
  - Procyclical policy: expansionary (contractionary) fiscal policy when the change in the output gap is positive (negative).
  - Countercyclical policy: expansionary (contractionary) policy when the change in the output gap is negative (positive).

---

### III.A ESTIMATION METHODOLOGY
- Decomposition approach:
  - Potential and cyclical components of GDP are extracted using the Hodrick-Prescott (HP) filter.
  - HP filter smoothing parameter λ: standard recommendations—14,400 for monthly, 1,600 for quarterly, 100 for annual data; after experimentation, the paper adopts λ = 100.
  - The end-point problem of the HP filter is addressed by extending the GDP series with projections through 2016.
- Uncertainty considerations:
  - Output gap estimates are subject to uncertainty in an economy with a perfectly elastic labor supply and when expatriate workers account for about 90 percent of the workforce.
  - The boom-driven increase in estimated potential non-hydrocarbon GDP during 2003–08 may have been partly due to easy credit and the real estate bubble rather than sustainable productivity gains.
- Cyclical adjustment specifics:
  - Cyclically adjusted non-hydrocarbon primary balance uses the non-hydrocarbon primary budget balance excluding interest spending, hydrocarbon revenues, and investment income of the sovereign wealth fund, scaled by non-hydrocarbon GDP.
  - The paper follows Horton, Kumar and Mauro (2009) and Abdih, Lopez-Murphy, Roitman and Sahay (2010).
  - Aggregate elasticities used: non-hydrocarbon revenues elasticity with respect to the output gap = 1; primary expenditures elasticity with respect to the output gap = 0.
  - Limitation: GRE quasi-fiscal activities are not included due to data limitations; calculations use standard measures of government finances.

*Key numeric points in methodology and related dynamics:*
- Hodrick-Prescott filter smoothing parameter adopted: λ = 100.
- Expatriate workers account for about 90 percent of the workforce.
- Average annual consumer price inflation: 2.9 percent in 2002; 12.3 percent in 2008; 1.6 percent in 2009; 0.9 percent in 2010.

---

### III.B A CONSOLIDATED VIEW
- Fiscal stance and dynamics (consolidated U.A.E.):
  - Overall fiscal balance moved from a deficit of 2.1 percent of GDP in 2002 to a surplus of 11.8 percent (average) between 2003 and 2008, driven by increased hydrocarbon revenues.
  - Non-hydrocarbon primary balance (excluding investment income) deteriorated from a deficit of 16.5 percent of non-hydrocarbon GDP in 2005 to a deficit of 26.7 percent by 2008.
  - Cyclically adjusted non-hydrocarbon primary deficit increased from 16.9 percent of non-hydrocarbon GDP in 2005 to 28.1 percent by 2008.
  - The fiscal impulse—change in cyclically-adjusted non-hydrocarbon primary balance as a share of non-hydrocarbon potential GDP—amounted to 11.3 percentage points over 2005–08.
  - During the downturn, authorities implemented countercyclical measures, raising the cyclically adjusted non-hydrocarbon primary deficit to 44.8 percent in 2009.
  - In 2010, the stance turned contractionary, with the cyclically adjusted non-hydrocarbon primary deficit narrowing to 35.1 percent of non-hydrocarbon GDP.
- Cyclicality finding:
  - Comparison of changes in the cyclically adjusted non-hydrocarbon primary balance and the output gap indicates fiscal policy was procyclical prior to the crisis (above-potential boom with inflationary pressures).
  - After the crisis, policy was expansionary countercyclical in 2009, then contractionary in 2010.

*Key numeric points in consolidated view:*
- Overall fiscal balance: deficit of 2.1 percent of GDP in 2002; surplus of 11.8 percent (average) between 2003 and 2008.
- Non-hydrocarbon primary balance: deficit of 16.5 percent of non-hydrocarbon GDP in 2005; deficit of 26.7 percent by 2008.
- Cyclically adjusted non-hydrocarbon primary deficit: 16.9 percent in 2005; 28.1 percent in 2008; 44.8 percent in 2009; 35.1 percent in 2010.
- Fiscal impulse 2005–08: 11.3 percentage points.

---

### III.C ABU DHABI (summary of available content)
- Role in national finances:
  - Abu Dhabi accounts for almost 70 percent of government revenues and dominates the U.A.E.’s consolidated fiscal position.
  - Abu Dhabi controls more than 95 percent of the country’s hydrocarbon reserves and thus has abundant fiscal space relative to other emirates.
- Implication:
  - Thanks to rising hydrocarbon earnings, Abu Dhabi’s overall fiscal balance improved (text cuts off at this point).

---

*Source: _wp11147 - References (PDF chapter/section).*

### 11.2 percent of Abu Dhabi GDP in 2002 to a surplus of 12.7 percent, on average, between

### _wp11147 - 11.2 percent of Abu Dhabi GDP in 2002 to a surplus of 12.7 percent, on average, between

### Abu Dhabi: fiscal balances and cyclicality
- Non-hydrocarbon primary balance (excluding investment income) widened from a deficit of 42.2 percent of Abu Dhabi non-hydrocarbon GDP in 2005 to a deficit of 61.4 percent in 2008.
- Government boosted primary spending by 39.4 percent in 2009, pushing the non-hydrocarbon primary budget deficit to 79.3 percent of non-hydrocarbon GDP in 2009.
- Government loan to the Emirate of Dubai accounted for 6.8 percent of total spending or 3.1 percent of Abu Dhabi non-hydrocarbon GDP in 2009.
- Cyclically adjusted non-hydrocarbon primary budget deficit, excluding investment income, widened from 42.7 percent of Abu Dhabi non-hydrocarbon GDP in 2005 to 63.8 percent by 2008, implying a fiscal impulse of 21 percentage points of non-hydrocarbon potential GDP on a cumulative basis prior to the crisis.
- After the crisis, an additional fiscal impulse of 17.8 percentage points led the cyclically-adjusted non-hydrocarbon primary deficit to an estimated 81.6 percent of Abu Dhabi non-hydrocarbon GDP in 2009.
- The high share of GREs in Abu Dhabi’s total public sector debt—about 90 percent—implies the fiscal impulse would be even greater if non-commercial GRE spending were accounted for.
- Fiscal stance: forcefully procyclical after 2006; turned countercyclical in 2009 to support the domestic economy; in 2010 fiscal policy turned contractionary, with the cyclically-adjusted non-hydrocarbon primary deficit narrowing by 10.7 percentage points to 70.9 percent of Abu Dhabi non-hydrocarbon GDP.

### Dubai: economic structure, fiscal space, and cyclicality
- Non-hydrocarbon sectors represent over 95 percent of Dubai GDP.
- Caveats: dependency on real estate-related sectors; limited fiscal diversification; slower revenue mobilization compared to other diversified emerging market economies.
- Overall fiscal balance: surplus of 0.1 percent of Dubai and northern emirates GDP in 2001 to a deficit of 1.8 percent in 2008 and 13.9 percent in 2009.
- Non-hydrocarbon primary balance worsened from a deficit of 1.2 percent of Dubai and northern emirates non-hydrocarbon GDP in 2005 to a deficit of 4 percent in 2008 and 18.5 percent in 2009.
- Cyclically-adjusted non-hydrocarbon primary budget deficit widened from 1.3 percent of Dubai and northern emirates non-hydrocarbon GDP in 2005 to 5.1 percent in 2008; fiscal impulse amounted to 3.8 percentage points of Dubai and northern emirates non-hydrocarbon GDP on a cumulative basis.
- GREs: share of GRE debt in total public sector debt—more than 70 percent—suggests substantial off-budget spending through GREs, possibly exceeding government-level spending.
- Fiscal stance: expansionary and procyclical prior to the crisis, exacerbating the non-hydrocarbon business cycle through real estate investments; cyclically adjusted non-hydrocarbon primary deficit widened to 19.2 percent of Dubai and northern emirates non-hydrocarbon GDP in 2009.
- Post-crisis countercyclical shift was enabled by financial support from Abu Dhabi and the CBU, which accounted for 45 percent of total government spending—and 9.6 percent of Dubai non-hydrocarbon GDP—in 2009.
- In 2010 Dubai’s fiscal policy became contractionary, with the cyclically adjusted non-hydrocarbon primary deficit narrowing by 13.4 percentage points to 5.8 percent of non-hydrocarbon GDP.

### Fiscal sustainability: aggregate and emirate-level findings
- Gross government debt, excluding domestic bank loans to the government, increased from 3.6 percent of GDP in 2007 to 6.6 percent in 2008 and 15.8 percent in 2010 (U.A.E. aggregate).
- Using the permanent income hypothesis and assumed parameters (real rate of return on assets 4 percent, inflation 2 percent, population growth of U.A.E. nationals 1.5 percent; hydrocarbon reserves depleted by 2082; oil price projected at $96.8 per barrel in 2016 and constant thereafter):
  - U.A.E. non-hydrocarbon primary budget deficit is estimated to be 4 percentage points of GDP higher than its equilibrium value in 2011, with the gap at 3.9 percentage points by end-2016.
  - Excluding development spending that may yield a return equal to the discount rate, the non-hydrocarbon primary deficit is estimated to be 2.9 percentage points of GDP below its equilibrium value in 2011 and 2.8 percentage points below by 2016.
- Disaggregated (emirate-level) analysis recommended due to fiscal decentralization and asymmetric resource distribution:
  - Abu Dhabi: non-hydrocarbon primary deficit is estimated to be 24.6 percentage points of GDP higher than its equilibrium value in 2011, narrowing to 21 percentage points by end-2016.
  - Excluding development spending, Abu Dhabi’s non-hydrocarbon primary deficit is 16.4 percentage points of GDP above equilibrium in 2011 and about 12 percentage points above by end-2016.
- Policy implication for Abu Dhabi: despite abundant fiscal space over the medium term, government spending should be moderated to maintain long-term sustainability and intergenerational equity.

### Dubai: debt, contingent liabilities, and scenarios
- Gross government debt (including government guarantees but excluding domestic bank loans) increased from 1.6 percent of Dubai and northern emirates GDP in 2007 to 10.3 percent in 2008 and 34 percent as of end-2010.
- Dubai’s publicly-held debt stands at US$113 billion (or 102.5 percent of Dubai and northern emirates GDP), with only US$36 billion belonging to the government.
- At least US$11 billion of contingent risk forecast for Dubai by end-2016, with more than 70 percent of these liabilities coming due in 2011-12. Accounting for these would raise total debt-to-GDP to 47.4 percent in 2012 (compared to 34.6 percent for the government alone).
- Including all maturing GRE debt as a contingent liability would raise Dubai’s total public sector debt to 62.5 percent of Dubai and northern emirates GDP as of end-2012.
- Debt sustainability projections:
  - Baseline with gradual fiscal consolidation: Dubai’s government debt estimated to increase to 41 percent of GDP by end-2016.
  - Without fiscal consolidation (i.e., no policy change compared to 2005-09): projected to reach 53 percent by 2016.
  - Including estimated contingent liabilities with baseline fiscal adjustment: total debt-to-GDP would increase to 54.3 percent by end-2016.
  - Including estimated contingent liabilities without fiscal consolidation: 62.5 percent by end-2016.
  - Including all maturing quasi-sovereign debt would raise Dubai’s total public sector debt to 88.6 percent of GDP by [end-2016 projection period].

### Key policy recommendations and implications
- Need for fiscal consolidation to ensure long-term sustainability and improve intergenerational distribution of hydrocarbon wealth.
- Moderate government spending in Abu Dhabi despite medium-term fiscal space to preserve long-term sustainability and intergenerational equity.
- Account for GREs and quasi-fiscal activities in fiscal assessment and debt metrics, given large shares of public sector debt and contingent liabilities in both Abu Dhabi and Dubai.
- Adopt disaggregated, emirate-level fiscal sustainability assessments given fiscal decentralization and asymmetric resource endowments.

*Source: Author's calculations, as reported in the supplied IMF chapter content.*

### 2016. Even if we assume minimal GRE spending going forward compare with the 2003-08

### _wp11147 - 2016. Even if we assume minimal GRE spending going forward compare with the 2003-08 period, these estimates already imply large fiscal costs...

### Fiscal costs and contingent liabilities from GREs
- Even assuming minimal GRE spending going forward compared with the 2003-08 period, estimates imply large fiscal costs and make fiscal sustainability a serious challenge for Dubai over the medium term (for detailed projections, see Appendix I).
- The amount of contingent risk reported should be regarded as a minimum level of contingent risk because:
  - Profitable companies outside the real estate sector may deteriorate and trigger sovereign support.
  - Non-listed entities not disclosing financial statements may be registering losses.
  - For several GREs, liabilities requiring sovereign support may exceed the level of publicly-held debt.
  - Sovereign support may go beyond guarantees and require capital injections.
- Net impact on the sovereign balance sheet might be somewhat lower when assets are accounted for.

### Dubai: narrow revenue base and debt sustainability dynamics
- Debt service ratio (interest payments as a share of GDP):
  - Increased from 0.6 percent of GDP in 2008 to 2.1 percent in 2010.
  - Estimated to reach approximately 3 percent by 2016.
- Primary budget balance:
  - Deficit of 2.9 percent of GDP in 2010.
  - Projected baseline deficit of 1.6 percent of GDP by 2016.
- Including estimated contingent liabilities:
  - Total debt service ratio would rise to 3.7 percent of GDP by end-2016.
- Revenue structure and constraints:
  - Tax revenues consist of custom duties and income tax on foreign banks and remain low as a share of GDP compared to other emerging market economies.
  - Custom duties account for more than 82 percent of total tax revenues, making the revenue base vulnerable to shocks.
  - Broadening the revenue base (for example, introduction of value-added tax) requires a national initiative.
- Policy implication:
  - Lacking scope for revenue mobilization, fiscal consolidation to achieve comfortable debt levels over the medium term needs to take place on the expenditure side, which would put further strain on economic activity.

### Abu Dhabi and other emirates: contingent-liability risks
- Abu Dhabi publicly-held government debt:
  - About 6 percent of Abu Dhabi GDP (publicly-held government debt).
  - Including outstanding GRE debt raises it to 54.8 percent of Abu Dhabi GDP.
- GRE debt exposure and contingent risk for Abu Dhabi:
  - Over US$92.4 billion in GRE debt outstanding.
  - Assuming GRE debt in real estate sector and GREs reporting losses imply contingent liability, at least US$9 billion of contingent risk can be foreseen for Abu Dhabi by end-2016, with more than half of that debt coming due in 2011-12.
- Recent GRE bailouts (financial support to Dubai by Abu Dhabi and the CBU; and to Abu Dhabi GREs by the government of Abu Dhabi) have bolstered implicit bailout expectations.

### Macroeconomic conclusions on procyclicality and fiscal federalism
- Fiscal stance:
  - Fiscal policy was procyclical at consolidated and sub-national levels prior to the crisis and turned countercyclical after the crisis in 2009.
  - Authorities adopted expansionary countercyclical stance and raised the cyclically adjusted non-hydrocarbon primary budget deficit in 2009.
  - In 2010 fiscal policy turned contractionary, with the cyclically adjusted non-hydrocarbon primary deficit narrowing significantly as a share of non-hydrocarbon GDP.
- Sub-national divergence:
  - Sustainability of public debt is not an immediate issue for the U.A.E. as a whole, but considerable differences exist at the sub-national level due to build-up of contingent liabilities during the boom years.
  - High degree of decentralization with insufficient policy coordination weakens aggregated macroeconomic management.
- Recommendation:
  - Closer policy coordination and institutional rethinking of fiscal federalism are needed to strengthen fiscal performance and safeguard macro-financial stability.

### Fiscal rules and institutional reforms (policy recommendations)
- General advice:
  - Support ongoing initiatives to enhance fiscal transparency with adoption of legally-anchored fiscal rules (procedural and numerical limits on fiscal aggregates).
  - Optimal design varies by country; for the U.A.E., rules can be implemented at consolidated and/or sub-national levels.
- Rule options discussed:
  - Overall budget balance rule:
    - Easy to implement and monitor.
    - Ceiling on overall fiscal deficit can be procyclical in hydrocarbon-based economy.
    - Ceiling on non-hydrocarbon deficit offers a better alternative and eliminates the problem of procyclicality.
  - Expenditure rule:
    - Operationally simple; ceiling on nominal or real expenditure growth provides clear guidance.
    - Requires a reliable medium-term framework to avoid built-up deficits and deterioration in net asset position.
  - Structural balance rule:
    - Preeminent option but operationally challenging.
    - Cyclically-adjusted non-hydrocarbon fiscal deficit rule avoids procyclical policies and ensures sustainability but requires reliable estimates of the output gap.
  - Debt brake mechanism:
    - Constrains debt-to-GDP ratio to safeguard fiscal solvency.
    - At emirate level, including quasi-sovereign debt, would prevent off-balance-sheet transfers and trigger automatic adjustment when cumulative deviation of overall fiscal deficit or GRE borrowing exceeds a target threshold, while retaining countercyclical properties.
- Emirate-specific measures:
  - Sub-national fiscal rules accommodating emirate-level structures and capabilities, plus a clear and credible fiscal transfer mechanism (or a credible “no bailout” clause) would help avoid moral hazard.
  - Emirate-specific fiscal rules with debt brake mechanisms impose high costs on non-compliance and de-politicize enforcement so corrective actions become automatic.
- Fiscal coverage and transparency:
  - Broaden coverage of fiscal accounts to include broader public sector where GREs perform non-commercial functions on behalf of government.
  - Timely fiscal reporting using a harmonized classification system.
  - Debt management offices should have dedicated units collecting frequent data on outstanding GRE liabilities, maturity profiles, income and cash-flow statements, and assessing potential contingent liabilities.
  - Consider including a statement of fiscal risks as part of annual budget documents focusing on GRE-related fiscal risks.

### Key projections and statistics (public sector debt, flows, and macro assumptions)
- Baseline: Public sector debt (% of GDP) 2007–2016 (selected years):
  - 2007: 1.6
  - 2008: 10.3
  - 2009: 32.4
  - 2010: 34.0
  - 2011: 32.9
  - 2012: 34.6
  - 2013: 36.1
  - 2014: 37.4
  - 2015: 39.0
  - 2016: 41.0
- Change in public sector debt (percentage points):
  - 2007: 1.6
  - 2008: 8.6
  - 2009: 22.2
  - 2010: 1.6
  - 2011: -1.2
  - 2012: 1.7
  - 2013: 1.5
  - 2014: 1.3
  - 2015: 1.6
  - 2016: 2.0
- Identified debt-creating flows (4+7+12):
  - 2007: 0.2
  - 2008: 1.0
  - 2009: 15.3
  - 2010: 2.4
  - 2011: -4.4
  - 2012: 2.0
  - 2013: 2.3
  - 2014: 1.9
  - 2015: 2.0
  - 2016: 2.3
- Primary deficit (% of GDP):
  - 2007: 0.2
  - 2008: 1.2
  - 2009: 12.9
  - 2010: 2.9
  - 2011: -0.9
  - 2012: 1.2
  - 2013: 1.4
  - 2014: 1.4
  - 2015: 1.5
  - 2016: 1.6
- Revenue and grants (% of GDP):
  - 2007: 6.6
  - 2008: 7.5
  - 2009: 10.6
  - 2010: 10.8
  - 2011: 10.7
  - 2012: 8.2
  - 2013: 7.8
  - 2014: 7.5
  - 2015: 7.1
  - 2016: 6.8
- Primary (noninterest) expenditure (% of GDP):
  - 2007: 6.8
  - 2008: 8.7
  - 2009: 23.5
  - 2010: 13.7
  - 2011: 9.8
  - 2012: 9.4
  - 2013: 9.2
  - 2014: 8.9
  - 2015: 8.7
  - 2016: 8.4
- Automatic debt dynamics (% of GDP):
  - 2007: 0.0
  - 2008: -0.2
  - 2009: 2.4
  - 2010: -0.5
  - 2011: -3.5
  - 2012: 0.8
  - 2013: 0.9
  - 2014: 0.5
  - 2015: 0.5
  - 2016: 0.6
- Contribution from real interest rate (selected years, % of GDP):
  - 2007: 0.0
  - 2008: -0.2
  - 2009: 2.1
  - 2010: -0.4
  - 2011: -2.7
  - 2012: 1.9
  - 2013: 2.3
  - 2014: 1.9
  - 2015: 2.0
  - 2016: 2.2
- Contribution from real GDP growth (selected years, % of GDP):
  - 2007: 0.0
  - 2008: 0.0
  - 2009: 0.3
  - 2010: -0.2
  - 2011: -0.8
  - 2012: -1.1
  - 2013: -1.3
  - 2014: -1.4
  - 2015: -1.5
  - 2016: -1.6
- Residual, including asset changes (2-3) (% of GDP):
  - 2007: 1.4
  - 2008: 7.6
  - 2009: 6.8
  - 2010: -0.7
  - 2011: 3.2
  - 2012: -0.3
  - 2013: -0.8
  - 2014: -0.6
  - 2015: -0.4
  - 2016: -0.3
- Public sector debt-to-revenue ratio:
  - 2007: 24.9
  - 2008: 137.1
  - 2009: 306.6
  - 2010: 315.5
  - 2011: 307.7
  - 2012: 421.0
  - 2013: 462.7
  - 2014: 500.4
  - 2015: 547.6
  - 2016: 601.1
- Gross financing need:
  - Percent of GDP:
    - 2007: 0.5
    - 2008: 2.6
    - 2009: 20.2
    - 2010: 21.2
    - 2011: 18.2
    - 2012: 19.1
    - 2013: 20.8
    - 2014: 25.5
    - 2015: 21.7
    - 2016: 23.1
  - In billions of U.S. dollars:
    - 2007: 0.6
    - 2008: 3.1
    - 2009: 21.1
    - 2010: 22.4
    - 2011: 20.9
    - 2012: 23.3
    - 2013: 27.2
    - 2014: 35.8
    - 2015: 32.8
    - 2016: 37.5
- Key macro and fiscal assumptions:
  - Real GDP growth (percent):
    - 2007: 18.1
    - 2008: 3.2
    - 2009: -2.4
    - 2010: 0.5
    - 2011: 2.8
    - 2012: 3.4
    - 2013: 4.1
    - 2014: 4.2
    - 2015: 4.4
    - 2016: 4.4
  - Average nominal interest rate on public debt (percent):
    - 2007: 6.4
    - 2008: 4.3
    - 2009: 6.5
    - 2010: 6.9
    - 2011: 7.7
    - 2012: 7.9
    - 2013: 7.7
    - 2014: 7.1
    - 2015: 7.7
    - 2016: 8.3
  - Average real interest rate (percent):
    - 2007: -2.7
    - 2008: -11.5
    - 2009: 17.8
    - 2010: -1.3
    - 2011: -9.0
    - 2012: 6.1
    - 2013: 7.0
    - 2014: 5.7
    - 2015: 5.7
    - 2016: 6.2
  - Inflation rate (GDP deflator, percent):
    - 2007: 9.1
    - 2008: 15.8
    - 2009: -11.3
    - 2010: 8.2
    - 2011: 16.7
    - 2012: 1.8
    - 2013: 0.7
    - 2014: 1.4
    - 2015: 2.0
    - 2016: 2.1
  - Growth of real primary spending (deflated by GDP deflator, percent):
    - 2007: 40.2
    - 2008: 23.8
    - 2009: 167.8
    - 2010: -45.4
    - 2011: -33.6
    - 2012: 0.3
    - 2013: 3.7
    - 2014: 3.2
    - 2015: 2.3
    - 2016: 2.6

### Alternative scenarios and bound tests (selected outcomes for debt-to-GDP ratio)
- A. Alternative Scenarios (debt-to-GDP ratios shown across projection horizon, selected results):
  - A1. No policy change (constant primary balance) in 2005-09:
    - Sequence: 34.0, 36.7, 40.3, 43.5, 46.4, 49.5, 52.9
  - A2. Government plus potential contingent liabilities:
    - Sequence: 34.0, 37.0, 47.4, 48.2, 50.7, 51.7, 54.3
  - A3. Government plus 100 percent of maturing GRE debt:
    - Sequence: 34.0, 47.4, 62.5, 64.6, 65.7, 70.4, 88.6
- B. Bound Tests (debt-to-GDP ratios under stress variants):
  - B1. Real interest rate at historical average plus one standard deviation:
    - Sequence: 34.0, 34.2, 37.5, 40.8, 44.0, 47.6, 51.8
  - B2. Real GDP growth at historical average minus one standard deviation:
    - Sequence: 34.0, 33.3, 36.2, 39.6, 43.3, 48.0, 53.6
  - B3. Primary balance at historical average minus one standard deviation:
    - Sequence: 34.0, 35.0, 38.9, 42.7, 46.2, 50.0, 54.3
  - B4. Combination of B1-B3 using 1/2 standard deviation shocks:
    - Sequence: 34.0, 34.9, 39.3, 43.7, 47.9, 52.7, 58.1
  - B5. One time 30 percent real depreciation in 2006:
    - Sequence: 34.0, 59.6, 62.0, 64.3, 66.0, 67.9, 70.4
  - B6. 10 percent of GDP increase in other debt-creating flows in 2006:
    - Sequence: 34.0, 42.9, 44.8, 46.7, 48.1, 49.8, 52.0

*Italic: Extracted from the provided IMF content unit.*

### Appendix I. Dubai: Public Sector Debt Sustainability Framework, 2007-2016

### Appendix I. Dubai: Public Sector Debt Sustainability Framework, 2007-2016

### Scope note
- (Percent of Dubai GDP, unless otherwise indicated)

### References
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*Appendix I. Dubai: Public Sector Debt Sustainability Framework, 2007-2016 — source PDF*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11147.pdf_