Dubai: The UAE is getting an economic boost from tourism and a recovery in its real estate market, but Dubai still has high debt levels, and the emirate should take steps to fix its government budget and avoid another boom-and-bust cycle, the International Monetary Fund (IMF) said in a new report on the country released on Tuesday.

The UAE’s economy grew 4.3 per cent last year and will grow by 3.6 per cent this year, according to estimates in the IMF’s annual Article IV report. But Dubai and its government-related entities still have around $142 billion (Dh521.7 billion) of debt, an amount greater than the emirate’s gross domestic product (GDP).

Against this backdrop, Dubai should improve its government budgeting and rein in its “large and still highly indebted” government-linked companies, the IMF report said. Dubai’s government firms and banks are regaining access to debt through bond sales and loans — their borrowings increased to $93 billion this year from $84 billion in March 2012 — but the IMF says strict oversight of these companies is needed to prevent risk-taking from going overboard.

“Renewed large scale external and domestic borrowing to finance ambitious real estate and tourism projects should be pre-empted to avoid setting off a new boom-bust cycle,” the report said.

Dubai was affected by the 2009 financial crisis, which sent local real estate prices tumbling and forced some of the emirate’s largest companies to renegotiate terms on their debt. Dubai World, a government-owned conglomerate, finished a $25 billion debt restructuring in 2011, while property developer Nakheel extended $10.5 billion of debt maturities the same year.

Property market recovers

Several other restructurings are still under negotiation, but Dubai has nevertheless launched a number of large new real estate projects recently as markets picked up. Residential rents were up 30 per cent in the year to the end of June, according to estimates from the consultancy CBRE.

If the market continues to overheat, the IMF report said Dubai should raise fees on real estate transactions. That would both bolster government revenue and help calm the market. Fees on transactions are currently just 2 per cent. But despite recent rises in prices and rents, Dubai’s market isn’t yet back in bubble territory, Harald Finger, the IMF’s mission chief to the UAE, said during a conference call.

“It’s too early to speak of a bubble now, but if prices increase at this pace, over time there’s certainly a risk that there would be a new bubble forming up,” he said.