June 23, 2013 (TSR-Xinhua) – Despite the unprecedented economic boom in the first six months in Dubai, the sheikhdom still struggles with debt it piled up before the global financial crisis.
According to the Dubai government’s statistics center, the emirate’s gross domestic product (GDP) grew by 4.4 percent in 2012 and the positive momentum sustained in the first half of this year across most industry sectors, said Simon Williams, the Middle East chief economist at HSBC.
However, the International Monetary Fund (IMF) warned in a statement released on June 11 “a faster pace of consolidation in Dubai would be desirable to address the emirate’s continued debt- related risks.”
The IMF said Dubai’s total debt continues to be substantial at 142 billion U.S. dollars which was around 102 percent of GDP. Whereas Dubai’s diminishing oil explorations contribute only 2 percent to its GDP, 90 percent of the UAE’s oil wealth is located under the sands and seas of neighboring Abu Dhabi, the UAE capital.
Out of the total debt, 35 billion dollars related to government and government-guaranteed debt, while Dubai’s government-related entities (GRE) increased their debt over the last year to an estimated 93 billion dollars up from 84 billion dollars in March 2012.
In December, 2009, Abu Dhabi bailed out Dubai with a 10 billion U.S. dollars loan guarantee.
Nevertheless, Dubai also managed to achieve some progress in its debt management in recent months and in re-gaining trust in the global investors’ community. On June 17, the Dubai Electricity and Water Authority said it has paid off 3.2 billion Dirham (about 872 million dollars) worth of Islamic bonds on time.
On May 9, Dubai Group, an investment vehicle owned by the ruling family Al-Maktoum, announced it was close to seal a restructuring of 6 billion dollars worth of debt with creditors by the end of June.
Georges Elhedery, head of global market at bank HSBC, said that the numbers were speaking for themselves. “The tight pricing, tenor and speed of execution demonstrate international investors’ confidence in Dubai’s credit.”
Despite this progress, the IMF urged to Dubai to establish a full debt management office. This office “would be tasked with implementing a proper risk management framework entailing effective identification, assessment, monitoring, and reporting of contingent liabilities arising from GREs,” said the IMF.