US crude oil futures lost almost $17 over the past week, their biggest weekly drop since they began trading in 1983, on demand worries and a move by investors to slash commodities exposures.
“Oil prices, they go up, they come down. We are fine, no issue right now,” Minister of State for Financial Affairs Obaid Humaid Al-Tayer told a news conference after a Gulf finance ministers’ meeting in the UAE capital.
Revolts sweeping the Arab world helped to drive benchmark US crude prices to more than two-and-half year highs of around $115 per barrel in recent weeks.
They closed at $97.18 per barrel on Friday, well above break-even prices for most Gulf exporters’ budgets. However, vulnerability to oil price swings in the Gulf is rising as governments boost spending to ease social tensions.
Al-Tayer also said the UAE, rated Aa2 by Moody’s, had no plans to issue a sovereign bond this year.
“If it (a federal bond) is needed, any issuance will be only at the beginning of next year,” he said.
The world’s third-largest oil exporter had originally set its 2011 budget with a shortfall of some AED3 billion ($817 million). So far, the UAE has not issued bonds at a federal level, unlike the individual member emirates.
Younis Al-Khouri, undersecretary and director general at the ministry, said earlier that the authority will assess demands to raise federal budget spending at the end of May or in early June.
“We have been receiving some of the ministries’ and government entities’ requirements and we are studying supporting them in the extra budget requirement,” he said.
The original 2011 budget was projecting expenditure of 41 billion dirhams, less than the 2010 plan.
Worried by regional unrest, the UAE has said it will spend $1.6 billion to improve infrastructure in less developed northern emirates, raised military pensions by 70 percent and introduced bread and rice subsidies. Sources have said plans to hike fuel prices were also delayed.
The UAE, which has avoided the turmoil challenging autocratic regimes in nearby Bahrain and Oman, did not say how it was planning to finance these new measures. UAE’s relatively small native population enjoys one of the world’s largest incomes per capita at nearly $49,000.
Fiscal policy is a key tool for UAE policymakers to steer the oil-reliant economy, as the central bank’s flexibility is limited by the country’s currency peg to the dollar.
