The financial year is composed of 12 months, starting from 1st January and ending on 31st December of each year. Ministry of Finances 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 Ministry of Finances. The minister shall issue another circular on closure of accounts and preparing the final account of the previous fiscal year.
Ministry of Finances of UAE 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.
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”, analyzing every function within an organization 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 prioritization 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.
The top level management of the ministry consists of the Minister’s Office, the Under Secretary Office, the Minister’s Consultants, and the Internal Auditing Office. Ministry of Finances includes 16 departments, the most recent addition of which is the Department of Macroeconomic and Fiscal Policy, in addition to the departments of Institutional Development, the General Budget, General Revenue, Coordination of Fiscal Policies, International Financial Relations and Organisations, Cooperation Council for the Arab States of the Gulf affairs and others.
Such 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. The ministry’s reasoning behind adopting a zero-based budgeting system is to have access to real cost through measuring the financial impact of all approved activities and comparing them to the cost of similar activities offered in the private sector. This falls in line with the implementation of the strategy that aims to improve the management of the federal government, adhering to prudent fiscal policies and increasing sources of income, which in turn confirms the strength and durability of the UAE’s economic situation and its opportunity for growth, while providing and maintaining high levels of services for citizens and residents.
Table – Budget & Budgeting analysis