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IMF serves up its own estimates on debts of Dubai

In the increasingly fast-paced world of international government finance, we still have to rely on the IMF to keep an eye on the ball.

Anyone who has been watching the Barclays Dubai Tennis Championships over the past fortnight knows that professional tennis has been revolutionised by a technological innovation called Hawk-Eye. Introduced in the UK a decade ago, Hawk-Eye is a computer system that analyses video feeds to verify whether a ball has landed inside or outside the court. With the top male players such as Marcos Baghdatis blasting serves over the net at speeds in excess of 200kph, it is getting harder for the human eye to determine exactly where a ball lands. Hawk-Eye provides nearly instant replays, enabling Novak Djokovic and other players to challenge judges who call a ball out when it was in or vice versa. Hawk-Eye therefore returns a level of transparency and accountability to an increasingly fast-paced game.

In the increasingly fast-paced world of international government finance, however, we still have to rely on the IMF to keep an eye on the ball. Last month, a team from the fund visited the UAE to analyse the situation at Dubai World and the effort by Dubai to restructure US$26bn (Dh95.49bn) of the company's debt. Spectators will recall that Dubai's announcement in late November that Dubai World would seek a standstill from creditors touched off a firestorm in international markets over the risk posed by heavily indebted governments. It also prompted Abu Dhabi to move forward with $10 billion (Dh36.73bn) in financial support to Dubai.

Throughout the entire episode, the most frequent complaint has been about the lack of transparency over Dubai Inc's debt and how the Dubai Financial Support Fund and Dubai World intend to treat creditors. As a result, following this $26bn match-up has involved fielding a volley of leaks and confidential briefings. One source lobs over a trial balloon on potential haircuts for bankers, another responds with a blistering backhand on sovereign rights. No one can keep score but everyone seems sure that if they so much as blink, the other side is sure to gain an advantage.

It does not help that Dubai World still has not said exactly how much debt it has, or that Dubai still has not issued a tally of how much it and the companies it controls owe. This uncertainty is reflected in the cost of insuring debt. Dubai is still considered one of the world's riskiest borrowers, riskier than even Greece or Iceland. And Abu Dhabi, thanks to its commitment to Dubai, is considered riskier than Qatar.

While they might not reveal much to the public, the emirates do hold discussions with the IMF. So the IMF's report could offer some rare insight.The report is 67 pages long and about as interesting as watching paint dry. But hidden in those drab pages are some real eye openers:* The IMF claims that Dubai Inc debt amounts to $109bn: That is far higher than the consensus estimate of about $85bn, but below the most extreme analyst estimates of nearly $160bn. The IMF's estimates may even be a bit low, since it tallies only $14.35bn in debt subject to Dubai World's proposed standstill. Dubai World itself has put that figure at $26bn. The IMF says it found another $11.7bn at the Dubai World subsidiaries that have been excluded from the restructuring, such as DP World. There's another $14.8bn at Dubai Holding, the IMF reckons, and $20.4bn at the Investment Corporation of Dubai. Combined with the $23.7bn owed directly by the emirate and another $24.4bn by other government companies such as the Dubai Electricity and Water Authority and the Dubai International Financial Centre, it comes out to $109.3bn in debt.

That works out to the equivalent of 130 per cent of Dubai's economy. And of that figure, about $35bn is guaranteed by the Dubai Government, an amount equivalent to 40 per cent of Dubai's GDP.The IMF also says Dubai Inc faces $15.53bn in debt repayments this year, which isn't much compared with the $24.4bn it will need to repay next year and the $25.1bn that comes due in 2014. But that would represent 15 per cent of each dirham the combined governments of the UAE are projected to earn this year.

* Next, the fund estimates that the UAE's foreign assets last year totalled $323bn: that includes sovereign wealth funds such as the Abu Dhabi Investment Authority and overseas investments by high-net-worth individuals. That is down significantly from the $568bn in foreign assets held in 2004.* The IMF's report says the UAE is to introduce a value-added tax, or VAT, in 2012: The Government has been discussing a VAT for a long time now, with the IMF recommending that having one could help diversify the government's revenue base away from oil. But it has never publicised any definite plans to introduce one. The IMF says authorities have assured it that the VAT will be in place in just two years.

* The IMF claims that Dubai is considering a capital-gains tax on property: Property sales registered by Dubai's Land Department might be subject to taxes on profits in order to discourage property speculation.* By the fund's calculations, rising loan defaults could require the Government to inject more capital into banks: The IMF estimates that falling property prices this year could push as many as eight banks, five of them in Dubai, below the Central Bank's new capital requirements, requiring a total of $2.9bn in additional capital. If Dubai World forces bankers to take haircuts, those numbers will be even higher. If banks have to write off 25 per cent of their loans to Dubai World, the IMF says, nine banks may need as much as $7.8bn in additional capital. If they have to take a 50 per cent haircut, the UAE might find itself having to pump as much as $9.8bn into 10 banks.

@Email:warnold@thenational.ae

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