UAE leads globally in “efficiency of government fiscal policy”

The UAE has scooped the first place globally in the field of efficiency of governmental fiscal policy. It has also achieved the seventh place in the efficiency of financial management in the public sector within the Global Competitiveness Report 2012 issued by the International Institute of Management Development in Switzerland.

By (WAM)

Published: Mon 4 Jun 2012, 5:57 PM

Last updated: Tue 7 Apr 2015, 12:08 PM

Shaikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and the UAE Minister of Finance has attributed this accomplishment to President His Highness Shaikh Khalifa bin Zayed Al Nahyan and His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, stressing that this success reflects the vision and guidance of UAE’s leadership and the continuing directives to adopt effective fiscal policies in the government taking into account the requirements of development and prosperity of the citizens.

According to the report’s findings, UAE has excelled among many other countries including the United Kingdom, Japan, France, and China, due to a number of reasons, most notably among them are government’s efforts not to impose taxes on individuals or companies, efficient social security policy and pensions for retired citizens, as well as on the efficiency of the governmental budget in terms of good management of surpluses and spending.

On this occasion, Shaikh Hamdan said: “The result clearly reflects the global recognition for UAE government efforts, and is considered an acknowledgement of the independent international organizations with the state’s administrative and financial capacity”.

He emphasised that the rapid growth and successful transition achieved by the UAE make it imperative to introduce necessary changes to the system of preparing the general budget, social security and other financial matters at the level of the federal government.

He added: “It has become in our capacity to enhance the efficiency of government spending and channelize our resources towards programs with high efficiency, and gradually give up less efficient activities and initiatives. By following the best practices, we have been able to work more efficiently and with less cost, at the same time sustaining our commitment with visions and guidance of our wise leadership to achieve social development”.

The report showed that the efficiency of fiscal policy and financial management in the government financial sector are considered key elements in determining the level of competitiveness of countries. This is what reflected positively on the performance of the UAE through a series of initiatives and legislation undertaken in this area.

The Federal Government had also followed effective legislation in promoting government’s fiscal policy during challenges faced by the global economy, as well as in strengthening the role of stakeholders in order to avoid structural risks in banking and financial system in the country.

The report showed that the most evident among the initiatives in the area of the application of efficient governmental fiscal policy was the zero-based budgeting adopted by the UAE for the years 2011-2013, as it contributed to enhancing the efficiency of government spending and the preservation of public money. The establishment of a federal level company for Credit Information had a major role in enabling the public and private sectors to gain a clearer and more comprehensive decision-making with regard to their lending in line with the efforts that are being made to reduce the credit risk at the national level.

The UAE also had achieved the seventh place globally among 139 countries in the category of the least wasteful government spending in the world in 2010 in the Global Competitiveness Report issued by the World Economic Forum.

In 2011, the UAE also ranked fifth among the world countries in the ‘Level of Financial Stability’ in the index of the World Economic Forum for Financial Development.

The country also received high estimates in all areas of financial assessment for the current year, and topped many of the sub-indices for the seven major criteria, which determine the total outcome of the general index of development.

The Ministry of Finance has made great efforts to improve performance and develop financial systems and procedures, all of which together contributed to the country’s achievement of the first place globally.

The country adopted the process of developing the governmental financial system and embraced application of the latest methods the developed countries have put into practice in the preparation of their general budgets by using the principles of zero-based budgeting system.

The “Zero-Based Budgeting” (ZBB) system is considered among the best governmental practices in the field of public finances and the preparation of the general budget in the federal government, according to the Standard Classification set by the Organization for Economic Co-operation and Development (OECD).

According to this system, the ministries and federal agencies prepare draft budgets based on an approach and plan, starting from the definition of activities to achieve strategic objectives, and then calculate the cost in the level of activities with the use of national and international standards to reach the high levels of efficiency and the maximum positive impact in the community against government spending.

ZBB is defined as method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a “zero base” and every function within an organisation is analysed for its needs and costs.

Through the application of the Zero-Based Budgeting, the Ministry of Finance aims to re-calculate the cost of activities carried out by government agencies from the beginning, in order to get to the real cost to render the required services without extravagance, and in a manner that allows for cost comparisons of similar services between the various government agencies as well as with the private sector.

The ministry also introduced a developed automated system linking all the ministries to the database in the Ministry of Finance, where the staff are trained in the field of preparation of draft budgeting in the federal government. The data of all state employees are entered into a system forming a central database, and all supporting information and procedures are electronically documented helping to complete all operations of preparing the draft budget on the basis of ZBB using ‘Oracle Hyperion’ system.

The Manual of Procedures for the preparation of the budget was developed, which eventually lead to the standardization of all steps and order of operations in all ministries. This is in addition to the conducting of work interviews and distribution of questionnaires to develop and improve performance and to identify the users of the system in response to the development and improvement procedures.

The aim of the application of Medium-Term Budgeting for three years 2011-2013 is to achieve a harmony between the budget targets and the long-term government strategy. This eventually will help to achieve the following objective: access to the maximum extent of the positive effects in the community against government spending.

Moreover, the period of three years allows for greater transparency with respect to causes, effects and provide room for the allocation of better financial resources. The increase in the time horizon gives federal agencies the opportunity to focus on the planned expenditure and facilitate the update procedures and the annual renewal.

This is in addition to the opportunity it gives the government to better picturize the financing needs and enable ministries and government agencies to link strategic objectives and operational budget easily and clearly.

The objectives include providing federal authorities with better policies financial operations in a transparent and clear manner to complete the operations of the finance management and creation of a clear understanding of the proposals and the requirements of federal agencies from the general budget.

It will also help objective assessment and prioritization as well as provide a practical framework for setting priorities among the activities to achieve the highest social values from the available financial resources.

The International Institute for Management Development (IMD) is widely considered as one of the world’s pioneers in business education and consistently ranked as top and very elite business school worldwide.

The IMD Global Competitiveness report is one of the most reliable references for governments, experts, researchers and academics in the field of monitoring progress in economic development and the competitive environment at the global level.