Dubai finances still vulnerable: IMF

July 07, 2014 - 2:20:59 am
H H Sheikh Mohammed bin Rashid Al Maktoum (second right), Prime Minister and Ruler of Dubai, looking at the mock-up of the “Mall of the World” project in Dubai. Dubai is planning a temperature-controlled city which will feature the world’s largest mall and an indoor park, as well as hotels, health resorts and theatres, the developer said. 

DUBAI: Dubai’s ability to finance its debts has improved because of stronger economic growth and more conservative spending, but the emirate would still be vulnerable in a major dowturn of the global economy, the International Monetary Fund said.

Dubai’s government debt is expected under a baseline scenario to fall gradually to 41.6 percent of gross domestic product in 2019 from 60.2 percent last year, the IMF said after annual consultations with the United Arab Emirates. That would be well below a peak of 66 percent in 2009, when a property market crash pushed Dubai to the brink of default and jolted financial markets around the world - though it would still be far above 15.4 percent in 2007, before conditions started deteriorating.

“Although Dubai’s debt could still become unsustainable under severe shocks, the outlook has improved,” the IMF said. “Continued fiscal consolidation and improving growth prospects have been strengthening Dubai’s resilience to external shocks.”

Under the scenario of a severe global downturn, however, Dubai’s debt would jump to 71 percent of GDP in 2019. This scenario assumes a shock to economic growth, lower inflation-adjusted interest rates, and deterioration in Dubai’s budget balance excluding interest payments.

A third scenario — a global downturn plus a real estate shock during which the government would take over 20 percent of the debt of government-related enterprises — would boost the ratio as high as 86 percent. The IMF predicted Dubai’s economic growth would average a healthy 5.6 percent in the next six years, boosted by big real estate projects and preparations to host the Expo 2020 world’s fair. Reuters

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