Dubai economy bolstered by good policies

In an economic downturn, good news is a rare commodity, especially when it comes to the economy as a whole. In this context, the Dubai Government yesterday said its economic growth will accelerate to 4.5 to 5 per cent this year — up from 3 per cent last year.

This underlines the fact that the government's intervention, including debt restructuring and fiscal tightening, has helped the economy return to growth. The positive mood is also reflected in the recent banks' and companies' results. An improvement in credit growth, backed by a decline in non-performing loans, indicates that the worst for them is over and that banks are on a growth path.

With prudent management, these lenders will be in a position to finance projects that will help investors either restart stalled projects or launch new ones. If this trend continues, Dubai will start attracting foreign investment in the next few years that will help create employment and wealth.

However, it took the government more than a year to work hard and engage in a set of complex negotiations in 2009-10 and manage the situation with less pain than feared by many. Looking at some of the European debt-ridden economies, one has to commend the authorities for bringing the economy back towards growth mode.

For Dubai the problems, however, are not over yet. A number of government organisations will have to settle a large amount of debt maturing in the coming months. The current comfortable situation gives the government a welcome breather to work hard to overcome the situation completely.

While the going is good, one should not forget the lessons learnt from the downturn that was resulted in over-dependence on cheap foreign finance. Going forward, the government should improve regulations and plug loopholes so that past mistakes do not come back to bite.