The UAE cabinet has cut the federal budget for 2011 by about 6 per cent.

The budget has been reduced to AED41bn ($11bn) from the AED43.6bn that was allocated for 2010. This contrasts sharply with the last budget, which increased the government allocation by 3.4 per cent from 2009.

The federal budget is only a small component of what is happening in terms of public spending

Marios Maratheftis, Standard Chartered Bank

The three-year budget of AED122bn for 2011 to 2013 was approved by the cabinet on 7 November. It is the first time that the UAE has approved a multi-year rather than a single year budget.

Economists are keen to point out that the cut in the federal budget does not mean that overall public spending will be cut.

“The federal budget is not as important to the economy as the impact of the budget for individual emirates. The federal budget is only a small component of what is happening in terms of public spending,” says Marios Maratheftis, regional head of research at the UK’s Standard Chartered Bank in Dubai

“In terms of projects, it is much more important to see what Abu Dhabi and Dubai are doing at an emirate level,” Maratheftis adds.

The UAE cabinet’s decision to approve a multi-year budget has received a positive reaction from local economists.

The budget for 2011 focuses on social development, with 46 per cent of the AED41bn total allocated to education, health, pensions and social assistance. The budget allocation for financial investments rose from AED3.2bn to AED3.4bn and AED418m is allocated towards road and infrastructure projects.