Unknown Dubai bilateral debts worry IMF

The International Monetary Fund said it estimates the total Dubai debt at around $86 billion, not including what it terms ‘bilateral bank loans’.

‘Bilateral lending is a bigger concern to us since the scale of lending could be very large and data is practically non-existent,’ the bank said in an annual report.

Operational restructuring

The IMF also repeated its stress on the importance of the operational restructuring of the Dubai Government owned entities at the heart of the debt problem, and said it thought the process would take ’sometime’.

‘Until now lots of these organizations have been able to attract funding based on implicit (government) guarantees,’ said regional IMF director Masoud Ahmad in a conference call. ‘It is now clear that these organizations will need to attract funding based on their own financial strength.’

In raising a red flag on ‘bilateral bank loans’ the IMF is making an important point. This explains much higher debt estimates such as $170 billion from EFG Hermes. Clearly the larger the debt the bigger the drag on recovery prospects for the UAE as a whole.

Late last month the IMF revised its estimate for UAE GDP growth down from 2.4 per cent to near zero. For this to improve the IMF says the Dubai World debt restructuring would have to be concluded more quickly than expected, or the real estate sector recover, or Abu Dhabi spend more.

Presently the uncertainty over the Dubai World debt rescheduling is the main block to improved confidence in local financial markets. It is also a very real block for the many businesses in the UAE owed money by the Dubai World subsidiaries Nakheel and Limitless.

Debt resolution

An early resolution of this matter is certainly far from impossible. The 11th hour Nakheel bond repayment in mid-December came completely out-of-the-blue when most observers had given up all hope, and the international press had Dubai sinking under the weight of its debts.

Abu Dhabi could also decide to spend more in a difficult year for the UAE. Its $2.5 billion bail out of Aldar Properties this week bodes well for a few more surprises.

Far less likely is a pick up in the local construction and real estate sector where the supply of new property is overwhelming falling demand. This remains a challenging year for the emirates.