Cost of borrowing has dropped, but interest is limited

One of the best pieces of news this region has had in recent months is that the price borrowers here have to pay international investors has been falling. This is a sign that confidence in the region’s prospects are rising, but also that confidence is rising globally, and so the cost of borrowing is going down almost everywhere. That’s good news for those struggling to repay debts they racked up when times were good and repayment seemed easy, such as Dubai and the companies it controls. Now times are tough, money is tight and servicing Dubai Inc’s US$85 billion (Dh312.21bn) debt has become a Sisyphean task. Falling borrowing costs can only help.

But the easing interest rates on foreign borrowing are also the result of a more pernicious trend, one that appears to afflict this region, the UAE in particular.

Since the global credit crisis erupted just over a year ago, many economists and policymakers have warned that recovery would depend on deleveraging, whereby banks, companies and consumers try to wriggle out of the credit binge they indulged in. The economy is terrible, unemployment is up and business prospects dim. Few banks want to lend. Few companies or consumers want to borrow. It’s a nightmare for policymakers because no matter what they try, the players in the economy insist on sitting on their hands, waiting for the other guy to blink. So deleveraging is a necessary evil, one that in the process makes the recession seem longer and more painful.