UPDATE 2-UAE fund plans to help pay debts of poor

Wed Nov 30, 2011 10:13am EST

Related Topics

* Wages to double in judiciary, health and education

* Rise effective from January

* Measures to help private consumption, fiscal burden to grow - analysts

By Martin Dokoupil and Sami Aboudi

DUBAI, Nov 30 (Reuters) - The United Arab Emirates on Wednesday set up a 10 billion dirham ($2.7 billion) fund to help pay low-income citizens' debts and announced plans to raise wages of some state employees, which may support its economy but also increase the fiscal burden.

President Sheikh Khalifa bin Zayed al-Nahayan also ordered a doubling of salaries of some state employees in the judiciary, health and education sectors from January to mark the 40th anniversary of the founding of the UAE, state news agency WAM said.

The UAE, a federation of seven emirates established in 1971 and one of the top five world oil exporters, has escaped unrest rocking the Middle East this year. It enjoys one of the world's highest per capita incomes of around $48,600.

"His Highness ... ordered the establishment of a 10 billion dirham fund that will take charge of studying and dealing with loans of low-income citizens, and to process settlements of personal loans due from them in coordination with the central bank and lender banks," the agency said.

Senior officials would receive a 35 percent pay increase, while a 45 percent pay rise would be given to mid-level federal government employees, WAM said.

It did not say how many state employees will get the increases, what was the total amount of the wage package or how it will be financed.

Most UAE fiscal spending occurs at the level of individual emirates, mainly oil-wealthy Abu Dhabi, with the federal budget accounting for only 11 percent of the total.

The government has already announced plans to invest $1.6 billion over three years to improve living conditions in less developed northern emirates and a 70 percent rise in military pensions among other measures.

The UAE's safe-haven status, high crude prices, strong trade flows and higher government spending are seen driving its economy to 3.8 percent growth in 2011, the highest since the 2008 global crisis, a Reuters poll showed.

The National Bureau of Statistics expects a 4.2 percent expansion this year, much faster than 1.4 percent growth in 2010, when the OPEC member's $297 billion economy had been recovering from a $25 billion debt restructuring at Dubai's flagship conglomerate Dubai World.

Economists said the measures should encourage household spending and bank lending, which has been sluggish following Dubai's woes, but the impact was hard to quantify due to a lack of details.

"The wage increase will be positive for sentiment and adding momentum to the recovery in private consumption, which was already boosted this year by a rise in tourism, especially from the GCC (Gulf Cooperation Council)," said Monica Malik, chief economist at EFG-Hermes in Dubai.

FISCAL BURDEN

Some economists said that the impact of the wage rise on the economy would be limited as nationals are estimated to make up only around 20 percent of the country's population, which according to 2009 government statistics stood at 5 million.

It will, however, increase a fiscal burden for the state.

"Inflation is not a concern. There is a greater fiscal vulnerability because the fiscal break-even (oil) price has risen sharply over the years," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

The oil price the UAE needs to balance its budget on a consolidated basis is estimated at $82 per barrel this year, sharply up from just $21 in 2005, he said.

The UAE, which pegs its currency to the dollar, has hundreds of billions of dollars of sovereign wealth to support its budgets if oil prices, now trading above $111 per barrel , were to stay weak over a longer term.

Consumer prices in the UAE dipped by 0.1 percent in October, which was the first annual price decline since February 2010.

UAE markets ended higher on Wednesday after the news with Dubai's benchmark up 0.6 percent and Abu Dhabi's index climbing 0.4 percent.

Sheikh Khalifa also ordered government departments to accord the children of Emirati women married to foreigners equal treatment to UAE nationals, WAM said. The order allows children of Emirati women to apply for UAE citizenship once they reach 18 years of age.

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