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Dubai's government approved a 2011 budget that sees the budget deficit cut to US$1 billion due to the authorities continuing to cut spending.

The lower budget gap is the smallest gap since 2007, and sees a reduction from the projected deficit of US$1.6 billion in 2010. The 2011 deficit is equivalent to 1.1 per cent of gross domestic product (GDP) in 2008, the latest year for which full economic output data is available.

"The budget reflects His Highness Sheikh Mohammed's directions towards generating necessary revenues to stimulate economic growth and financial sustainability in Dubai," Dubai's department of finance said in a statement, reported Reuters.

Development spending was set to fall to US$2 billion this year, the lowest since 2006. Expenditure, 43 per cent of which is earmarked for infrastructure spending, is to be trimmed 5 per cent to US$9.1 billion from the budgeted US$9.6 billion in 2010.

Revenue for Dubai was to rise by 1.7 per to US$8.1 billion. The five per cent spending cut in the 2011 budget compares with the 14 per cent reduction planned in 2010 from actual expenditure in 2009 in an attempt to reduce the budget as the financial crisis hit Dubai hard.

"We expected to see government spending continuing to retrench given Dubai's debt challenges," said Monica Malik, chief economist at EFG-Hermes in Dubai.

A burst property-bubble had forced the emirate to tackle a part of its debt pile, estimated at US$115 billion or 123 per cent of GDP, and introduce austerity measures over the past year.

A slowdown in infrastructure spending and late payment from government entities continues to mar the marketplace as Dubai struggles to restructure debts and revive economic growth.

Dubai has partly restructured Dubai World which agreed a US$25 billion debt package with creditors and two out of three wings of Dubai Holding have agreed to extend their maturities.