x Abu Dhabi, UAESunday 21 January 2018

IMF official says full picture of UAE's debt is hard to see

IMF officials still do not have a clear picture about the UAE's total indebtedness as Dubai addresses an estimated $18bn of borrowings due this year.

Buildings along Sheikh Zayed Road in Dubai. Jeff Topping / The National
Buildings along Sheikh Zayed Road in Dubai. Jeff Topping / The National
The IMF has had difficulties gathering data on external debt of the UAE, a top official of the fund said yesterday.

"We at the IMF and I myself am still left with having to pull together various bits of information in order to come up simply with what I see as a comprehensive picture of indebtedness," Gabriel Sensenbrenner, the IMF's deputy division chief for the Middle East and Central Asia, said at a conference on public debt in Abu Dhabi yesterday.

The "external debt" Mr Sensenbrenner was referring to is money owed to foreign entities by UAE governments and government-related companies. Getting accurate debt figures about government-linked companies was especially difficult, he added, calling them "hard to penetrate".

The question of how much money these companies owe came to the fore when Dubai World, Dubai's largest government-owned conglomerate, announced a US$24.9 billion (Dh91.45bn) debt restructuring in late 2009.

It has now finalised the deal with state help, and other major corporations connected to the Government are currently in talks to extend debt repayments.

"You can see that even after the resolution of Dubai World, even though there are a lot of reports in the press that banks are happy with the debt restructuring that is going on in other parts of the Dubai sphere, you still see an elevated cost of funds," Mr Sensenbrenner said.

Since those restructurings, Dubai, Abu Dhabi and the federal Government have set up debt management offices to better handle and monitor borrowings. But neither the UAE nor the individual emirates have ever revealed their foreign indebtedness.

That, however, may change when the federal Government issues its first bonds this year and seeks credit ratings that help investors to gauge the risk of buying the debt. Publicising foreign indebtedness may help to ease worries about high debt levels after the financial crisis and restructurings in Dubai.

"This is an emerging market country, it's a country with a lot of potential, it's a region with a lot of potential, but there are no data on external debt," Mr Sensenbrenner said.

"No rating agency will give you a rating without disclosing this. So from the point of view of a consumer of economic and financial statistics, I put myself in the shoes of an investor who has to assess credit risk in this situation, and it's very hard."

Abu Dhabi and Dubai have sold bonds to international investors for years, but the federal Government has never done so. A law passed last year by the Federal National Council paved the way for a programme of regular debt sales by the Central Bank and the Ministry of Finance. The legislation is waiting for presidential approval, as is a law that caps federal debt at 25 per cent of GDP.

Officials at yesterday's conference said the federal debt programme would begin with short-term bills and notes issued by the Central Bank and progress to longer-term bonds handled by the Ministry of Finance. The aim is to establish a government yield curve that would serve as a reference for interest rates on private companies' borrowings.

Saif al Shamsi, the senior executive director of the Central Bank's treasury department, said regulators were still sorting out how the issuance would work. It was important, he said "to have proper co-operation" between the Central Bank and the Ministry of Finance, which had previously been "poor".

While the bonds would create a yield curve, they will also provide an extra tool for banks to manage their financing, officials said. Local banks are currently flush with cash, Mr al Shamsi said, having been helped by an increase of about Dh30bn in foreign deposits during the past year.

Foreign deposits had risen to Dh80bn since June, he said.

"The UAE has a very good infrastructure in terms of encouraging investment," Mr al Shamsi added. He said it was hard to tell how much of the increase in foreign deposits was attributable to the regional unrest. "If you want to go invest someplace, you have to look at the services, the hotels, and the infrastructure, and if it is accommodating, you go."