x Abu Dhabi, UAESunday 23 July 2017

Be cautious over signs of recovery, Dubai urged

The Institute of International Finance has cautioned against exuberance about Dubai's economic recovery as the emirate still faces US$37 billion in maturing debt this year and next year.

Dubai is expected to still do
Dubai is expected to still do "very well" if it sticks to its strengths which include tourism. Jaime Puebla / The National Newspaper

The Institute of International Finance has cautioned against "exuberance" about Dubai's economic recovery as the emirate still faces challenges ahead.

As long as Dubai stuck to its core strengths such as trade, transport, finance and tourism, the emirate would do "very well", said George Abed, the senior counsellor and director of the IIF, the global association of financial services firms.

"We don't want to get too euphoric about Dubai and fall into the same difficulties of before," said Mr Abed yesterday. "We think the lessons of the debt crisis have been largely absorbed but in some quarters we hear sometimes a note of euphoria, perhaps, and excitement, exuberance that should be cautioned against."

A surge in Dubai stocks and a tightening in the emirate's sovereign credit default swap spreads have signalled a gradual return of investor confidence since Dubai World roiled local markets by announcing a $25bn debt standstill in November 2009.

The emirate's economy would expand by 4.5 per cent this year, its fastest rate of growth since 2008, estimated the IIF in its outlook report for the GCC economy, released yesterday. Much of the expansion has been built on rising numbers of visitors and cargo through the emirate's ports as well as a pick-up in activity in areas such as finance and retail.

Progress has also been made in cutting the emirate's debt. The Dubai Group, an arm of the Dubai Holding conglomerate, last week said it had reached an agreement with two rival factions of creditors on the terms of a deal over its $6bn external debt. It follows the successful restructuring of Dubai World's debt with creditors in 2011.

The emirate still faces $10bn in debt maturing this year and a further $27bn next year, according to the IIF. Bloomberg figures show $17bn maturing this year and next while Moody's says $22bn in liabilities are due next year.

Some of that debt is likely to be tied up with Dubai Holding, an that Mr Abed said he expected to be resolved in a "peaceful and cooperative manner".

Further debt maturity coming due includes Dubai World's restructured debt, which Mr Abed said he expected would be able to be repaid "without the need for [further] restructuring". In a report last month, Bank of America Merrill Lynch called debt maturing in 2015 a "key challenge" for the emirate, including the $4bn loan that Dubai World has coming due in March that year.

But notwithstanding the debt repayments, efforts should continue to focus on strengthening the balance sheets of government-linked firms, says the IIF.

"They've restructured the debt, cleared the road for lower repayments going forwards and should make sure that the balance sheet does not get into trouble again by accumulating debt against questionable assets the same way in the past," said Mr Abed.