Dubai: Economic growth has picked up in Dubai, lowering the contagion risks from highly-leveraged government related entities (GREs) to the Dubai government, Moody’s analysts said yesterday.
According to the Dubai Statistics Centre, Dubai’s real GDP grew 4.9 per cent in the first half of 2013, catching up with Abu Dhabi’s growth rate. Dubai’s accelerated growth will help strengthen cash flows at GREs and raise non-oil public revenue; although the UAE’s narrow tax base limits the direct windfall for public finances.
Improving fundamentals and high external demand continue to fuel asset inflation. According to various reports, Dubai’s residential real-estate prices have increased by more than 20 per cent while Dubai’s equity market gained more than 100 per cent in 2013. Private credit growth in the UAE federation has picked up to 7 per cent as of December from 3.5 per cent at the beginning of 2013. “We expect this [credit growth] to be reflected in higher consumer price inflation in 2014, despite new regulations aimed at preventing the real-estate market from overheating, including the doubling of a property transfer tax in September 2013,” said Khalid Ferdous Howladar,Vice President — Senior Credit Officer at Moody’s.
Vulnerability
Legacy debt problems have been moderated through extensive restructuring efforts with the local banks, but a renewed leveraging of state-owned companies would increase government and banking sector vulnerability to future downturns.
“Dubai Inc” companies or the strategically important government-related entities in Dubai – have successfully concluded their restructurings, the last being that of Dubai Group, a subsidiary of Dubai Holding, which reached an agreement with its creditors in January 2013 over $6 billion of bank loans. Despite these restructurings analysts said the public sector remains highly leveraged, with the gross debt burden of Dubai Inc (including the Dubai government) rising to $131 billion (Dh480.7 billion) in April 2013 from $129 billion in 2012 according to the IMF.
