The provisional constitution stipulates that each amirate contribute to the federal budget. In practice, however, Abu Dhabi was the only contributor in the 1970s Dubayy began to contribute in the early 1980s. In 1991 Abu Dhabi provided 77.5 percent of the federal budget and Dubayy, 8.5 percent. The govÍÍÍÍernment levies taxes on oil companies and banks in Abu Dhabi and Dubayy but not on other businesses and individuals.

The poorer amirates benefit from federal expenditures on defense, infrastructure, education, and social services, but they draw up their own budgets (which are seldom published) for municipal expenditures and industrial projects. Some of these projects have been motivated more by prestige than practicality. For example, Dubayy, Sharjah, and Ras al Khaymah have built large international airports, even though they are a one-half-hour drive from each other and less than a two-hour drive from Abu Dhabi's large international airport.

Ras al Khaymah and Sharjah have borrowed heavily to finance facilities and industries, resulting occasionally in economic and political problems. Sharjah, for example, suffered a coup attempt in 1987 carried out by opponents critical of the amir's alleged financial mismanagement. The amirate's debt burden at the time was estimated at US$920 million.

The revenue and spending estimates for the UAE's first and only five-year plan (1981-85) were based on strong oil revenues in the late 1970s. Petroleum revenues fell in the early 1980s, however, rendering many of the plan's goals unattainable. The federation's first budget deficit (Dh3.9 billion) occurred in 1982. Since that time, government planners have opted for a more flexible approach, keeping in mind the vagaries of the world oil market and tending to be more conservative in revenue and spending projections. Even so, sudden drops in oil revenues have repeatedly forced the government to put new projects on hold and to freeze current projects. Deficits generally are funded by Abu Dhabi and Dubayy and by borrowing from the Central Bank.

Although there is no attempt at long-term, coordinated development planning, three main objectives have guided federal government spending. These include strengthening the federation's physical infrastructure and social services network, diversifying the economy, and expanding entrepôt trade.

Despite slowdowns in world oil markets and amirs jealous of their local sovereignty, the UAE has been able to finance massive infrastructure projects (roads, utilities, communications, ports, and airports) modern education, health, and welfare systems and improvements in agriculture and fishing. The lion's share of the federal budget, however, goes to defense (see table 29, Appendix). As a result of the continuing potential for conflict in the gulf in the 1990s, defense will probably continue to absorb between 40 and 50 percent of federal outlays and will not face the same cuts as do other sectors if the economy contracts.

After battling budget deficits during most of the 1980s, the UAE saw 70fbudget s surpluses in 1990 and 1991. Deficits were projected to return in 1992 and 1993, with an almost US$710 million shortfall expected in 1993 (the figure includes US$245 million rolled over from the previous year's deficit).

Abu Dhabi is one of the world's most generous donors of foreign aid in terms of GDP and population. In 1981 foreign grants and loans amounted to US$2.7 billion, or 8 percent of GDP. Even in leaner times, aid in 1983 was US$1 billion, or 4 percent of GDP. The Abu Dhabi Fund for Arab Economic Development, with paid-up capital of US$500 million, extends loans and grants mainly to Arab and Muslim countries. Recipients have included Bangladesh, Egypt, Jordan, Mauritania, Morocco, Syria, and Yemen. The level of annual outlays depends on oil revenues. In 1989 the fund's committed capital was US$2.2 billion. Loans in 1988 amounted to US$41.1 million, up from US$4.2 million in 1987.

Data as of January 1993