Dubai: The UAE has weathered the global economic and financial crisis well due to strong fundamentals as well as timely policy responses, a new International Monetary Report shows.
The UAE's GDP growth this year is expected to decline to 2.3 per cent, down from 4.9 per cent last year, as fiscal consolidation continues. Thwe UAE's GDP is expected to reach $386 billion (Dh1.41 trillion) this year, up from $360 billion (Dh1.32 trillion) last year, according to the report.
The report also address how the UAE has handle its outstanding public debt, which has reached $252.9 billion (Dh928.64 billion) — more than 70 per cent of the country's gross domestic product (GDP).
Of the total, $129 billion is owed by the Dubai Government and its government-related entities (GREs) while $108.3 billion is owed by Abu Dhabi Government and its GREs. Some $32.2 billion of the total debt will mature this year, $28.7 will mature in 2013, while the remaining $182.3 billion will come up for maturity in the following years, the report shows.
While Abu Dhabi's total public debts are less than 50 per cent of the emirate's GDP, Dubai's public debts (Government's borrowings and GREs' total debts combines) represents more than 92 per cent of its GDP, statistics show.
"With better growth prospects and plans to consolidate public finances, Dubai's government debt sustainability has improved," IMF said.
Dubai's government debt spiked in 2009 as a result of the crisis as the emirate provided support to its troubled GREs.
"The baseline scenario reflects a projected steady recovery of growth in the medium term and a gradual consolidation of Dubai government's fiscal accounts aiming to bring the fiscal accounts close to balance by 2014 in line with Dubai's plans. Under this scenario, the debt-to-GDP ratio is on a gradual declining path."
The government is addressing the pending GREs issues, said, A. Shakour Shaalan, Executive Director for the UAE.
"The Dubai World debt restructuring was completed and several other troubled GREs are in the process of restructuring," Shaalan said.
Sovereign fund
However, despite the increased size of debts, economists say, on the aggregate, the UAE is in a strong fiscal position given that sovereign wealth fund assets are significant.
"In other words, the UAE is a net creditor on the aggregate. Gross debt has risen in the course of the country's economic diversification drive away from hydrocarbons toward cementing UAE's position as a regional hub," Dr Giyas Gokkent, group dhief economist of NBAD, told Gulf News.
"Debt management offices have been created for oversight. Debt maturity has been extended in a number of instances."
The report, which is part of IMF's annual assessment of the UAE economy, is based on the UAE Government statistics provided by the Ministry of Finance and the UAE Central Bank.
However, both Dubai and Abu Dhabi governments have restructured a sizeable chunk of their debts. As a result, the estimated total GRE debt declined to 51 per cent of 2011 GDP as of March 2012, from 61 per cent of 2010 GDP, though Abu Dhabi's GRE debt still rose in nominal value. "Despite recent progress in debt restructuring, GREs are still facing financial challenges. While the debt of some GREs has been restructured [including Dubai World], the process has been more protracted in other cases, such as Dubai Holding," IMF says.
"Rollover risks are still considerable, with $30 billion falling due in 2012. Moreover, significant amounts of debt will mature in 2014-15."
IMF stressed the desirability of a comprehensive strategy aimed at bolstering market confidence in GREs, and transparent reporting of GRE-related fiscal risks. Its prescription include: stronger GRE balance sheets and Proper fiscal risk management and reporting framework, and better availability of information on GRE debt, among others.
"While both Abu Dhabi and Dubai have made progress in identifying and monitoring GRE liabilities, and new borrowing by GREs is subject to approval, contingent liabilities continue to be undisclosed," it said.
"Improved GRE corporate governance and transparency would also be essential, including by delineating clearly their commercial and noncommercial operations, and standardising their accounting, auditing, and financial reporting practices."
IMF officials noted that data availability and risk management regarding GREs are gradually improving. In particular, Abu Dhabi has made public the list of companies explicitly supported by the government. The Dubai government, in turn, emphasised that Dubai GREs are not backed by a sovereign guarantee, and that the Department of Finance and Supreme Fiscal Committee now play a major role in GREs debt monitoring and approval of new borrowing.
"Different countries have different debt management policies. As an illustration, the Maastricht criteria in the Euro area included a target envisaging that the ratio of gross government debt to GDP must not exceed 60 per cent at the end of the preceding fiscal year," Dr Gokkent says.
"The conditions allowed that even if the target could not be achieved due to specific conditions, the ratio must have sufficiently diminished and be approaching the reference value at a satisfactory pace."
