Thursday, December 6, 2012

Fiscal Balance Essay

Essay on Fiscal Balance

Fiscal balance is the total balance, which includes the government tax revenues, proceedings from the sale of assets, and all the government spending deducted. When these calculations are complete, and there is a positive figure, it then indicates a fiscal surplus. In economics, it is the balance of the total income and expenditure the government incurs while carrying out its operations (Hansen, 231).
Gross domestic product is gross market value of all the consumer goods and services created in a country. The values that constitute in the calculation of GDP include the total customers, government expenditure, exports and investment. The most influential factor of the economy is the growth of the gross domestic product (Auerbach, 212). The table below shows the United Arab Emirates balance and the percentage gross domestic product in the years 2005 to 2010. Reports indicate that there was a fluctuation of the expansion and reduction in the fiscal balance and the gross domestic growth as indicated in the table.

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Year - UAE Fiscal balance and % GDP
2005 - 101.5
2006 - 163.9
2007 - 194.4
2008 - 304.7
2009 - 0
2010 - 27.1

The table above indicates a rise and fall in the fiscal balance in Billion Dirhams. The trend shows that there was a steady rise of the fiscal balance from the year 2005 to the year 2008, which had the highest growth of 304.4. A rapid drop of the fiscal balance experienced in the year 2009, which has a fiscal balance of zero billion. This drop in the balance was because of the world crisis that hit almost all the nations, and this did not exclude Dubai, which was among the hardest hit.

Dubai had a significant amount of debt; Abu Dhabi had to buy the largest part of the shares of Dubai. The economy has gradually grown since the year 2006, because of aid from Abu Dhabi. This recovery is supported with the aid of the slow expansion of the fiscal policy. The growth of the economy results from the economic activities that Abu Dhabi carries out, the country has increased spending on the investment sector.

The investment on the development of the real estate business is rapid and in aid of the expansion of the economy. The rise of the oil prices has increased the income of the United Arab Emirates. These economic investments resulted to increase of the total balance over the years.

In the United Arab Emirates, the central bank governor releases the reporting of the fiscal position of a company. In the past year, reports indicate that the country’s financial position was steady and desirable. There was a record of a surplus in the fiscal balance, which was approximately 3% of the gross domestic product because of the rapid profitability from the increase of the oil prices.

The governor of the central bank, Al Suwaidi, states that there was an expansion of GDP compared to the year 2010, and there was an increase of the fiscal balance because the previous year had a deficit of approximately 2%. The fiscal balance and gross domestic product in United Arab Emirates had been fluctuating over the years with 2009 being the worst although Abu Dhabi has been of help and there is expansion of the fiscal balance, currently due to the economic activities in the country.

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