Policy Coordination in Fiscal Federalism: Drawing Lessons From the Dubai Debt Crisis

IMF Working Papers, June 1, 2011

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Using the cyclically adjusted non-hydrocarbon primary balance, the paper investigates the evolution of the fiscal policy stance in the United Arab Emirates at consolidated and sub-national levels in the run-up to and after the crisis.
Focus areas include fiscal policy stance, fiscal sustainability, fiscal federalism, and macro-financial vulnerabilities associated with procyclical policy.
Author: Serhan Cevik
Date: June 1, 2011

Procyclical fiscal policies prior to the crisis reinforced the financial sector cycle.
Procyclical fiscal policies exacerbated the economic upswing.
These dynamics contributed to the build-up of macro-financial vulnerabilities.
Analysis uses the cyclically adjusted non-hydrocarbon primary balance as the principal indicator.

Develop a rule-based fiscal framework to strengthen fiscal policy coordination between various layers of government.
Implement measures to ensure long-term fiscal sustainability.
Aim to ensure a more equitable intergenerational distribution of wealth.
Strengthen institutional arrangements to manage fiscal imbalances and contingent liabilities at emirate and federal government levels.

Subject: Expenditure, Fiscal policy, Fiscal stance, Fiscal sustainability, Public debt
Keywords: budget deficit, business cycles, contingent liabilities, cyclically-adjusted budget balance, debt brake mechanism, debt sustainability, Dubai debt crisis, emirate government level, emirate level, emirates GDP, federal government, fiscal federalism, Fiscal imbalances, fiscal policy stance, Fiscal stance, Fiscal sustainability, Global, net financing need, potential GDP, statement of fiscal risks, U.A.E. constitution, U.A.E. economy, WP