IMF concerned about Dubai debt expansion to $142bn
The International Monetary Fund has warned that Dubai is risking another boom-to-bust business cycle by pushing up its debt to boost short-term growth at the cost of the medium term outlook, in a statement concluding its annual mission to the UAE.
The global central bank highlighted an increase in debt at Dubai government-related companies from $84 to $93 billion in the year to end of March. Borrowers have been taking advantage of the low yield on Dubai Government bonds to raise new funds. Total debts of $142 billion are now over 100 per cent of GDP.
$60bn by 2017
Around $60 billion of Dubai’s debts mature between this year and 2017, said the IMF, and that would leave the emirate vulnerable again to a deterioration in the global economy as in 2009. It criticized the management of debt in Dubai and called for the establishment of a debt management office.
The IMF would also like to see improvements in corporate governance with a clear separation between commercial and non-commercial activities at the government-related companies, and independent boards.
With property prices now almost back to pre-crisis levels, trade booming and tourism extremely bouyant in Dubai it is hard to believe that as recently as December 2009 the emirate was sinking in a debt crisis. Abu Dhabi came to the rescue with a $20 billion bailout and the $25 billion debts of Dubai World were restructured.
Has Dubai quickly slipped back into the bad habits of the past? The IMF makes its point with information supplied by the government, itself an advance in transparency since the crisis. There are now no hidden debts.
The question is whether they are sustainable through commercial activity or being racked up on prestige projects of dubious economic utility. So far the spending is mainly on finishing the best projects and high-margin in-fills like the shopping facilities on the Palm Island.
There are no more dinosaur parks in the desert and the most ambitious new schemes like the Mohammed bin Rashid City are phased out over decades. Still it is always a dilemma for any business, and Dubai Inc. is no different, as to the level of borrowing appropriate to the enterprise.
We recall the advice of the World Bank back in 2003 that Dubai should leave its development primarily to the private sector and wonder if the city would have its amazing infrastructure and critical mass today if that advice had been taken.
Building cities is after all the business of sheikhs and not multinational bureaucrats.