UAE to post surplus as lower oil prices strain GCC budgets in 2025
Lower oil prices are set to challenge fiscal balances across the GCC, with most economies facing wider budget deficits in 2025, according to Emirates NBD, a leading GCC bank.
However, the UAE is expected to buck the trend, maintaining a budget surplus, albeit smaller than previously forecast, bolstered by its diversification efforts and prudent fiscal policies. The broader implications of falling oil prices underscore the urgency of economic diversification across the region, with the UAE serving as a model for resilience.
Emirates NBD has revised its 2025 oil price forecast to an average of $68 per barrel, down from a previous estimate and below the GCC's weighted average fiscal breakeven oil price of $74 per barrel (excluding Qatar). This downgrade signals deeper deficits for most GCC economies, with the bank now projecting a weighted average budget deficit of 3.6 per cent of GDP in 2025, compared to just 1 per cent in 2024.
The UAE, however, remains a standout, with a forecasted surplus of 1.8 per cent of GDP, down from an earlier projection of 2.7 per cent and a 2024 surplus of 3.4 per cent.
Daniel Richards, senior economist at Emirates NBD, emphasised the region's resilience despite fiscal pressures. 'The negative impact on non-oil growth will be limited in the near term, thanks to diversification-focused investment programs,' he said. 'Lower oil prices highlight the critical role of these strategies and recent tax reforms, such as the introduction of VAT and corporate income tax. Low debt levels across the GCC also provide substantial borrowing capacity to manage deficits.'
The UAE's fiscal strength is underpinned by its diversified economy and strategic investments in sectors like tourism, technology, and renewable energy. According to the UAE's Federal General Budget Annual Report, 2024 revenues reached Dh65.7 billion ($17.9 billion), with expenditures at Dh 64.1 billion ($17.5 billion), yielding a surplus of Dh1.6 billion ($436 million). For 2025, the UAE cabinet has approved a balanced federal budget of Dh71.5 billion ($19.5 billion) for both revenues and expenditures, reflecting an 11.5 per cent increase in spending.
While the federal budget represents only a portion of total spending —individual emirates like Abu Dhabi and Dubai maintain their own budgets— it signals robust government investment and revenue collection efforts.
Highlighting the UAE's proactive approach, economists argue that the Arab world's second-largest economy's ability to maintain a surplus, even with lower oil prices, reflects its success in reducing oil dependency. 'Investments in non-oil sectors, coupled with tax reforms, have created a buffer against oil market volatility,' one analyst said.
In contrast, Saudi Arabia faces a steeper challenge. Emirates NBD projects a 2025 budget deficit of 6.0 per cent of GDP, equivalent to $66.9 billion, up from 5.2 per cent previously and significantly higher than the Saudi government's 2.3 per cent forecast.
With a breakeven oil price of $97.5 per barrel, far above current levels, and ongoing production cuts, Saudi Arabia's fiscal strain is evident. Total revenues are expected to fall to $310.4 billion in 2025 from $335.7 billion in 2024, driven by lower oil income, despite growth in non-oil revenues. The government's share of Aramco's dividend, a key revenue source, is projected to drop from $124 billion in 2024 to $85.3 billion in 2025.Saudi Arabia's spending is forecasted at $377.3 billion, exceeding the government's $342.7 billion projection. While current expenditure dominates at 86 per cent of the budget, major projects like NEOM and Vision 2030 initiatives are largely funded through the Public Investment Fund, softening the budget's exposure to spending cuts.
'Saudi Arabia's fiscal outlook remains challenging, but its non-oil revenue growth and alternative funding mechanisms provide some flexibility,' said Karen Young, a senior fellow at the Middle East Institute, in an interview with Reuters.
The GCC's reliance on oil underscores the need for sustained diversification. The UAE's success in fostering non-oil growth—through initiatives like Dubai's D33 economic agenda and Abu Dhabi's green energy projects — offers a blueprint. 'The UAE's diversified revenue streams and low debt levels position it to weather oil price shocks better than its neighbors,' said Jim Krane, an energy expert at Rice University's Baker Institute, in a statement to regional publication.
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