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It is time to rethink strategy
The UAE needs to protect its inhabitants from the debt trap.
- Gulf News
- Published: 00:00 October 27, 2006
Despite enjoying explosive economic growth, high inflation and house rent are forcing a majority of the UAE's population to live on some form of debt, be it credit cards, car loans, personal loans or mortgages. High inflation and the possibility of defaults on the expanding personal and home loan portfolios of banks are key risks facing the UAE economy, the National Bank of Dubai (NBD) said in its latest report.
The UAE Central Bank figures show personal loans surged 64 per cent in 2005 to Dh97.7 billion and by a further 37 per cent in the first quarter of 2006 to Dh133.5 billion. Personal loans as a percentage of total credit rose to 27.7 per cent in 2005 from 24.1 per cent in 2004.
The country's 4.1 million inhabitants hold a total of Dh133.5 billion in personal loans. In simple arithmetic this means, on average, each UAE resident has to carry the burden of a whopping Dh32,560.97 personal loan on his shoulders.
NBD, the country's fourth biggest bank by assets, estimated domestic inflation at between 12 and 15 per cent in 2006 and said it was the single largest risk to the UAE economy. The possibility of defaults on personal and home loan repayments to banks was also a threat, it added. This is by no means good news to a country whose economy witnessed massive growth over the last few years.
The majority of the debt-trapped residents are expatriates who are partners in the UAE's progress. The country's contracting companies are also hiring large number sof expatriate workers, who will join those who currently make up 80 per cent of the country's population.
The widening gap between income and expenditure could threaten the growth and stability in the country's banking and finance sector, as well as the overall economy. The UAE needs to protect its inhabitants, consumers, from the debt trap if it wants to pursue a balanced and sustainable development.
It's time to rethink strategy.
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