Dubai: The impact of low oil prices would remain muted on UAE more than for other GCC countries, Bank of America Merrill Lynch said in a recent report.
“The indirect impact through lower regional and domestic liquidity, real estate, external sector and indebtedness would be more pronounced if oil prices remain low for long. In the near-term, we think Dubai should be able to tackle refinancing challenges,” Jean-Michel Saliba, Mena economist, of BofA Merrill Lynch said in a report.
“Nevertheless, we expect large Dubai projects to be gradually phased over time. We see strong Dubai government commitment to the timely completion of the Expo 2020. Disciplined fiscal policy remains paramount for Dubai government debt dynamics to take a stabilising sustainable path,” he said.
For the GCC as a whole, BofA Merrill Lynch analysts expect tougher economic environment if the oil price decline is to persist for a longer period.
Prudence
“In our view, the GCC macro story is likely to have peaked if oil prices stay low for long. We expect twin deficits, as well as weaker real GDP growth and softer non-hydrocarbon sector growth on greater fiscal policy prudence. A prolonged period of low oil prices and regional geopolitical threats remain the primary risks. The realisation of external risks and global risk aversion may cut market access to Dubai Inc, risking a credit event,” he said.
While Saudi Arabia is expected to face softer non-oil GDP growth and slowdown government capital spending, economic activity remains cushioned in the near-term due to continued expansionary fiscal policy and still healthy credit growth. Overall on-budget capital expenditures are likely to be curtailed, although strategic projects appear ring-fenced. This is likely to come at the cost of wide and unsustainable fiscal deficits.
