Dubai’s Economy Won’t Recover From The Pandemic Until 2023, Says S&P

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The vital industries of the city continue their struggle of recovering from the impact of the coronavirus pandemic which is further expected to increase the debt load on Dubai.

Tourism alone has been making up 12% of the annual GDP as compared to oil that makes only 1%. As air flights had been limited and the entertainment sector had to close down for months, Dubai’s major chunk of the GDP was reduced. As for oil, even though it forms a minor part for Dubai, the neighboring countries’ increased dependence on hydrocarbons suggests that the plummeting of oil prices reduced the proximate partners’ ability to invest and trade.

“We estimate, based on publicly available information, that Dubai’s gross general government debt will reach about 77% of GDP in 2020,” said S&P. “However, a broader assessment of the public sector, including government-related entity (GRE) debt, indicates a debt burden closer to 148% of GDP,”

Whereas the London consultancy Capital Economics estimated that $21 billion of Dubai’s GRE debt would be due in the next three years, followed by another $30 billion in 2023, the Dubai’s government released a much lower debt figure that is around 123.5 billion AED.

The problem arises due to the way in which Dubai calculates its debt, by excluding debt owed by government-related entities (GREs). On the other hand, rating agencies including S&P calculate it using the available information about the local borrowing because GRE debt is issued by both private and unrated bodies.

The former head of Dubai’s finance department, Nasser al-Shaikh said, “Rating agencies are in an awkward position when it comes to Dubai. With it being unrated, their estimates were simply wrong as shown in disclosures made by Dubai when it recently raised $2 billion — which of course was oversubscribed several times.”

In September, Dubai returned to public debt markets after six years by issuing $2 billion in debt consisting of $1 billion Islamic Sukuk and a $1 billion government bond.

The government’s aim is to define the debt it is liable for and the debt it is not liable for. While rating agencies try to cover all possible liabilities.

In response to the report by S&P, Al-Shaikh said, “Sovereign debt is only that which (the Dubai government) is legally responsible for debt being extended to the Government, its public institutions and commercial debt that carries its guarantee. GREs are commercial entities that borrow on commercial terms and it’s completely up to the Sovereign to decide if it will assist them financially or not.”

According to him, supporting the flagship carrier Emirates Airline with 7.3 billion AED has been the only public sovereign commitment from Dubai.

Source CNBC

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