IMF notes Dubai still has to repay $31bn over two years
Posted on 02 April 2011 with no comments from readers
With the big $24.9 billion Dubai World debt restructuring in place, the local government has been quick to talk up recovery prospects. But the IMF chipped in late last week with a reminder that Dubai still faces ’significant rollover risks’ from the coming repayment of $31 billion over this year and next.
A mission from Washington last month concluded, ‘With an estimated $31 billion of debt due in 2011-2012, of which at least $5 billion is in the real estate sector, Dubai continues to face significant rollover risks in the short term’.
Debt watch
The IMF basically told Dubai not to return to its former free-spending ways but to keep a careful watch on debt levels at all government-related entities. However, the world’s central bank noted that the Dubai World restructuring had ‘improved market confidence, paving the way for other top-grade Dubai debt issuers to regain access to finance’.
Higher oil prices, and improving trade and tourism were also judged positive for the local economy. The headwinds are still a ‘large surplus in the property market’, international sanctions against Iran and a possible downturn in Asia brought on by high oil prices, said the IMF.
To treat these headwinds in order of wind speed. First, a double-dip recession or second global economic crisis remains a major concern. Dubai is the most globalized of regional cities and will suffer most in a global downturn as it did so suddenly in late 2008.
Property slump
Secondly, empty property weighs on local balance sheets and depresses bank lending. However, it would actually greatly aid a future oil-fuelled boom to have all this real estate ready and waiting for occupants at reasonable rents.
Thirdly, the embargoes on trade with Iran have caused pain for local traders but this is a known factor and not likely to get much worse. Indeed, the hope must be for some sort of future settlement and a recovery in this ancient trade route.
That said the latest edition of the ArabianMoney newsletter (click here) is not recommending Dubai stocks as a buy right now, mainly because the global recovery looks to be in considerable trouble.
