Dubai’s government plans to increase public expenditure by around 20 per cent in 2009 to stimulate the service-based economy, the Financial Times quoted a senior policy-maker as saying on Saturday.

Nasser Al-Shaikh, director-general of Dubai’s finance department said it would increase from some Dh30 billion ($8.17 billion) that was budgeted for public spending in 2008.

‘The role of government is to increase spending during challenging times and provide a stimulus to the economy,’ Shaikh told the paper.

Dubai has slashed by around half its economic growth projection for 2009 to between 4 to 6, Shaikh said in remarks published on Thursday.

Shaikh is a member of a Dubai committee set up to respond to a financial crisis that has shaken investor sentiment and heightened concerns about transparency in the emirate.

Dubai’s sovereign debt stands at $10 billion while the debts of state-affiliated firms amount to $70 billion, Mohamed Alabbar, a member of Dubai’s ruling council and chairman of Emaar Properties said in November.

Officials in Dubai are looking to 2009 with optimism amid claims that the real estate sector could recover from recent price falls faster than some predict.

Senior financial executives put Dubai in a good position to face the challenges of the global downturn.

The fall in real estate prices in Dubai should reach a bottom in just three to four months, according to Ali Khan, executive director of investment bank Arqaam Capital. ‘The real estate market will reach a bottom a lot quicker than people are anticipating,’ he said.

And recovery will come as the best property companies are changing their strategies to cope with the financial downturn. ‘I don’t expect companies just to sit by and let their order books disappear and not do anything. We’re clearly seeing signs of some of these real estate firms actively trying to change their strategies and so forth,’ he commented.

He added that once property prices start to pick up, this is likely to have a knock-on positive effect on stock markets, which he said should turn around by the second quarter of next year.

And with the Dubai Government set to announce a record budget in a few weeks there is optimism within the sector.

Nasser Al Shaikh, Director General of the Dubai Department of Finance, said Dubai is in a sound financial position. ‘The new environment is challenging. But we are in absolute control of our destiny. We have the means to deal with the outcome of the global credit crisis,’ he said.

The new budget is expected to focus on capital expenditure with an increase in spending on infrastructure projects, including completion of the Metro project, expansion of the airport and construction of a new airport. It is also expected that 32,000 new housing units will completed in the coming year.