What are the developments related to restructuring the federal budget procedures and applying zero-based budgeting (ZBB)?
The most significant developments related to restructuring of the federal budget preparation and implementation of the zero-based budget system is the automation of all procedures in accordance with the rules and regulations, and linking them to the advanced electronic systems of the Ministry of Finance (MoF), which were prepared in compliance with the principles of a zero-budget system. All restructuring procedures are reviewed at the beginning of each budget cycle and periodically updated to ensure adaptability and relevance to the actual work requirements in line with the rules a zero-budget system approved for the preparation of the general budget. Since the beginning of the cycle of the medium-term budget plan 2011-2013, these procedures have been gradually automated on the electronic systems of the Ministry of Finance and circulated to all federal entities in the country.
These procedures include:
- Developing strategic planning of federal entities.
- Estimating revenues.
- Prioritization.
- Determining the budget of capital projects based on federal spending and priorities.
- Translating the limits of sectoral expenditures to the ceilings of the budgets of federal entities.
- Preparing the financial circular.
- Distribution of budget ceilings of federal agencies from a strategic standpoint.
- Preparation of a draft budget for ongoing activities.
- Preparation of a draft budget for new activities.
- Preparation of a draft budget for management services.
- Compile the draft cycle of the budget plan.
The zero-based budgeting concept was introduced by Peter Phyrr in 1970, who served as a consultant to the then Governor of Georgia, James E Carter, who later became the President of the US. However, this trend has only recently (in the past three years) attracted a great deal of interest from public and private sector companies. In your opinion, what do you think is the reason for this interest in zero-based budgeting?
The recent attention to zero-based budgeting (ZBB) is due to several factors, most notably its ability to link available financial resources with long-term and medium-term strategic plans; the targeted objectives, programmes and activities for the budget implementation period. This is implemented by prioritising activities to better allocate resources and rationalise public expenditure. In MoF's experience, the advantages of zero-based budgeting can be summarised as following:
For the UAE:
- Allocate the available financial resources to achieve the best results for financial sustainability.
- Implementation of best practices in financial planning.
For ministries / Independent entities:
- Link the long-term objectives of the federal entities with the general strategy.
- Provide detailed data for activities and programmes distributed across accounting groups and clauses.
- Accuracy in the estimation of public revenues and expenditures of federal entities.
- Extract detailed reports for all elements of long- and medium-term strategic plans to demonstrate and monitor financial and operational performance indicators.
- Strengthening the decision-making process.
What is the biggest economic gain after the approval of the Cabinet on the ZBB of Dh180 billion for the years 2019 to 2021?
The largest economic gain following the Cabinet's approval on the ZBB of Dh180 billion for the years 2019 to 2021 was in the following areas:
- Enhancing the level of government services to diversify sources of revenue.
- Raising the efficiency of public spending, which has direct consequences on increasing the volume of investments, as well as on the major macroeconomic engines in the country.
- Laying the foundations for strengthening economic diversification framework by developing and innovating employment sectors that are capable of generating new job opportunities.
The federal budget doubled more than 300 times, from Dh200 million in 1972 to Dh60.3 billion in 2019, which is an important achievement. Can you define the parameters of this growth over the past four decades?
The UAE's wise leadership, which established solid foundations for government operations, has supported the country's march to becoming the greatest in the world in various areas. And the growth witnessed during the past four decades is evidence of these unceasing efforts. For example, the number of federal government entities increased from 20 in 1972 to 55 in 2019, while the listed financial allocations for various government sectors have also increased.
Financial allocations in the general budget during the period went up from Dh25.69 million to Dh6.67 billion, reflecting the leadership's keenness to invest in human resources right from the beginning.
Allocations for key sectors have also risen significantly. For healthcare, it went up from Dh13.21 million to Dh4.4 billion and for foreign affairs from Dh15 million to Dh2.47 billion. The wise leadership has from the outset shown special interest in capital projects involving state infrastructure. In 1972, Dh180 million was allocated for infrastructure, which has now gone up to Dh10.92 billion for 2019.
For the social affairs sector, it shot up from Dh3.23 million to Dh3.22 billion.
What is your vision of the direction of the UAE economy in the medium and long term in the coming decades?
The current global economic landscape is characterised by geopolitical tensions, trade frictions, intensifying uncertainty and volatile stock exchanges and currencies. Yet, the UAE's economic performance has been stable, prompting the IMF to raise its projected growth of the UAE to 3.7 per cent in 2019.
Being flexible and diversified, we trust that the UAE economy will maintain its growth in 2019 despite the challenges and the global economic conditions. Several developments have taken place last year especially on the soft infrastructure front, where new federal laws were introduced to enforce integration of our economy in the global economy by adopting international standards and best practices, with the aim to improve the business climate, reduce cost and increase efficiency. These measures helped achieve the 2018 economic goals and framed the positive outlook for 2019 and 2020.
UAE has made great strides in recent years. The UAE was ranked 11th in the World Bank's Doing Business report and 7th in the World Competitiveness Yearbook of the IMD in 2018. Looking at the pace of progress in competitiveness indicators in the past 10 years, I can say with great confidence that we are on the right track towards achieving our vision to be among the top 10 countries in the world.
The Strategic Plan 2017-2021 aims to enhance the quality and efficiency of financial planning processes and diversify federal financial resources. Can you give us a bigger picture of these objectives, their indicators and frameworks?
The strategic plan 2017-2021 aims to enhance the quality and efficiency of financial planning processes via the development of standard models prepared by electronic systems in line with best international practices for budget preparation, transparency, and rationalisation of public spending. As for the diversification of financial resources, the Ministry of Finance seeks to achieve its strategic objective to gain the highest amount of financial resources and ensure the implementation of MoF's remit of optimal utilisation of the resources of the federal government. This is achieved by developing new government strategies, in which the main operational performance indicators are identified and monitored by the concerned authorities, while the budgets of the relevant federal entities are monitored by MoF.
What are the results of the bankruptcy law since its issuance two years ago? How have companies and institutions at the local and global level received the law?
The Bankruptcy Law, issued by Federal Decree No. 9 of 2016, regulates various bankruptcy cases and sets out the legal tools necessary for debtors' business restructuring. The law provides a range of means to avoid bankruptcy and liquidation of debtor's assets, out-of-court financial restructuring, preventive composition, and access to new loans under conditions determined by law.
The previous legal provisions related to insolvency did not address procedures for conciliation and restructuring adequately. The power of this law lies in the decriminalisation of bounced checks by insolvent companies that are subject to restructuring by judicial order. At a broader level, the new law includes a more structured timetable for rescuing companies in critical financial situations.
We believe that the law is an important step, which will add value to our business community and will have positive implications for foreign and domestic investors. Additionally, we are working on a new insolvency law for individuals. These improvements in our legal framework are conducive to enhancing competitiveness and sustainable economic growth.
The law assumes due importance for the national economy as it will provide the necessary protection for creditors and debtors rights. Moreover, it enhances investors' confidence and contributes to improving UAE position as a global business hub. The law was well received by companies for it helps business continuity in difficult financial circumstances.
The introduction of VAT has proven to be a huge success. What factors contribute to the positive response of the business?
One of the most important factors contributing to the success of VAT is the Common Reporting Standard (CRS), which has been adopted by the UAE and represents a multilateral legal framework that promotes transparency and exchange of information for tax purposes. It was adopted by the Organisation for Economic Co-operation and Development (OECD) for the exchange of automatic information and other non-OECD economies in 2000 for efficiency, as well as to reduce costs to financial institutions. This is to ensure unified tax reporting standards and accountability.
