Dubai: Tight credit will continue to drag the Gulf and the UAE's economic growth down this year, an industry expert told a gathering organised by the Dubai School of Government on Sunday evening.

"Credit will be a key drag on growth in the GCC," Ali Al Shihabi, founder and chairman of Rasmala Investment Bank, told the audience at the conference entitled "How Quickly can the GCC Emerge from the Slowdown."

"The UAE Central Bank has protected Dubai from an Iceland-type crisis," he added.

Al Shihabi said that the main driver to economic growth is getting the banks back to lending, something that does not look very promising in the Gulf in 2010.

"Global banks have burnt [their fingers] with Nakh-eel exposure and Saad and Algosaibi default in Saudi Arabia. Thus they are going to be reluctant to come back into the regional lending game," Al Shihabi said.

"The balance sheets of many of the UAE banks have suffered from the last two years with the substantial exposure to local real estate and Dubai Inc companies. So they will be more conservative in terms of their lending."

He added that Qatari banks also suffered, but they had capital injection from the government. But they are going to be very cautious.

Saudi banks are solid, but again they are more conservative and more Saudi focused, he said.

Moreover, he said that the underdeveloped legal structure in the GCC is one of the key weaknesses of the economy which increases the risk premium, particularly for banks.

"What turned the crisis into a disaster is the weakness in the banking system," Al Shihabi added.

The weakness in the banking system is a hindrance to facing such huge economic problems.

With zero taxation, good logistics, safety and hospitality infrastructure, Dubai has created a unique business model that survived and in a way strengthened during the crisis, he said.

"In the last three years, this business model has been affected by two things: lack of capacity and inflation," he said.

Al Shihabi pointed out that the failure of communication and lack of reliable economic data have a negative effect on this business model.

"We talk the talk but we don't walk the talk."

However, Al Shihabi said that high oil prices will help the economies cushion the risks this year.

In addition to this, "strong government spending in the GCC will support economic growth which will move forward like a supertanker, slow but steady," Al Shihabi said.