The general budget is the financial program of the federal government used to achieve economic and social development. This is accomplished through the optimal distribution and efficient use of resources within the framework of the federal strategy on the expected spending by federal authorities during the coming fiscal year, provided that income and expenditure are balanced.
According to the decree of Federal Law No. 8 of 2011, a separate budget for federal service authorities may be earmarked, and submitted to MoF for approval within budget law. Also, all federal authorities may - by virtue of a Cabinet resolution - be assigned to prepare a draft medium-term budget. The Cabinet resolution shall determine the budget's terms in years provided that it includes annual estimates for both income and expenditure as approved by the Cabinet.
The financial year is composed of 12 months, starting from 1st January and ending on 31st December of each year. MoF issues a circular that specifies the necessary steps for the preparation of next year’s draft budget during the third month of the present fiscal year. Such a circular shall include budget cap, approved strategic objectives, indicators, revenue forecast and the fixed deadline for submitting a draft budget to MoF. The minister shall issue another circular on closure of accounts and preparing the final account of the previous fiscal year.
Each federal authority determines its programs, plans and Key Performance Indicators (KPIs) according to the strategic plan approved by the Cabinet within the budget cap. All authorities must also submit their initial forecasts for revenue and expenses allocated to chapters, line items, programs and activities agreed upon, along with performance measures and efficiency indicators according to the circular issued by the minister, which specifies submission deadline.
Steps of issuing Budget Law
Upon completion of the previous steps, MoF carries out the following:
- Preparing an annual draft budget law.
- Preparing a draft resolution of the medium-term plan.
- Submitting both drafts to the Cabinet for discussion and preparing them for final approval.
- Submitting draft law for the Federal Budget and the autonomous budgets to the Federal National Council (FNC) two months prior to the beginning of the fiscal year. This is to enable FNC to discuss and provide feedback on the draft.
- Submitting draft law accompanied with FNC's feedback to the Supreme Council (SC).
- Upon the issuance of budget law, all federal authorities are informed by MoF about their allocations.
The budgeting process is initiated by release of the financial circular on preparation of the draft budget for the next fiscal year. This financial circular is issued in accordance with the law, and based on the UAE Cabinet’s Resolution No. 1/181 of 2008, which mandates all the ministries and federal authorities to prepare their draft budgets on the basis of a medium term plan, to adopt the principles of a zero-based budgeting system and to work as per the rules and regulations of the consolidated financial procedures manual.
How is the federal budget prepared?
In each annual budget, revenues, expenses and allocations are to be determined on the basis of the following budget sectors:
- Social development
- Government affairs
- Social benefits
- Infrastructure and economic resources
- Financial assets and investments
- Other federal expenses
The social development sector includes public, university and higher education services, health, pension fund (pensioners), social assistances, marriage fund grants, Sheikh Zayed Housing Programme grants, and other services.
Based on the general strategic objectives of the federal government (UAE Vision 2021), all ministries and federal authorities prepare plans for their annual budgets, under the supervision of the Ministry of Cabinet Affairs. This is to ensure that these plans are in line with the overall vision of the country as a reference for sectoral plans and programs.
MoF provides technical support to all ministries and authorities during the budgeting process to ensure their readiness and ability to carry out their tasks.
MoF implements zero-based budgeting principles; it cooperates with ministries and federal authorities to determine the main and complementary services and activities of such entities along with their cost, starting from zero point to the actual cost, then adding this cost within the approved automated systems.
This system achieves the following objectives:
- Identify main and complementary services for each entity.
- Comparing similar activities in various government authorities.
- Enhancing performance efficiency and maximising the use of government spending.
- Promoting the principles of transparency and open data approach.
Steps and Phases of Budgeting Process
Federal budgeting process consists of several phases, namely: planning, preparation, budgeting, review, approval and execution
The planning process is based on the federal government strategy. Then strategic and sectoral plans, as well as program structures developed for each ministry and federal agency.
This phase begins by setting national priorities, forecast of revenues, assigning CAPEX budget based on priorities and spending targets, translating spending targets into budget caps, and preparing budget circular.
Ministries and federal entities prepare their respective draft budgets and the details of the budget caps in accordance with the set strategic objectives. They also prepare budgets for ongoing activities, new activities and administrative services, prepare their first complete draft budget for whole budget cycle, discuss their projects internally to determine priorities, and finally submit their draft budget to MoF.
MoF reviews and discusses budget allocation of the ministries and autonomous agencies with these parties according to strategic objectives, government directives, revenue forecast and budget caps.
Final budget law is prepared and submitted to the Cabinet. The budget law is then duly discussed, approved and enacted by the Cabinet.
Copies of the federal budget law are sent to all federal entities along with their respective budgets to begin execution.
Zero-Based Budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. ZBB is conducted at regular intervals and starts from a "zero base", analysing every function within an organisation regarding its needs and costs. Budgets – within the limits of budget caps – are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one. It provides bottom-up costing for performed activities. The budget is based on the costing and prioritisation of activities, as well as the optimal use of resources. ZBB has been applied since the budget cycle 2011-2013.
The federal budget follows a medium-term budget cycle. The budget cycle must match the strategy cycle of the federal government. A budget is drawn up for each year within the fiscal period, before the start of the period, and is updated annually within the budget cycle. This principle ensures that the long-term government strategy is reflected in the budget on a consistent basis. The federal budget cycle will be developed from a three-year to a five-year budget cycle.
A five-year Budget (2017 - 2021)
Next year, MoF will adopt a five-year budget (2017 - 2021). This follows a three-year budget for the three previous cycles (2008 - 2010), (2011 - 2013) and (2014 - 2016). The first cycle completed most of the well-developed infrastructure projects, while the second focused on enhancing federal services and maximising people's well-being.
Six elements to applying best practices
Federal budgeting is prepared based on six major elements that all comply with international best practices and increase transparency and efficiency.
These elements can be grouped under the following headings:
- Alignment of the budget with government strategy through program budgeting and performance monitoring.
- Seamless integration of annual budgets in three-year budget cycles.
- Definition of sectoral spending targets and ministry/autonomous agencies budget caps by the Financial and Economic Committee.
- Elimination of unjustified vacancies.
- Integration of CAPEX and OPEX budgeting.
- Application of zero-based budgeting.