Dubai Still in the Doldrums | Emerging Markets Outlook

Last year I wrote a blog post about the financial collapse of Dubai World and its effects on Dubai’s own Roman-candle economy and on other emerging economies worldwide. I had previously written about the effects of the global financial crisis on Dubai’s prospects. I concluded that the Dubai World implosion, together with the economy-wide devastation resulting from the global recession, did not bode well, but that it was too early to write off Dubai’s future role in the world economy, given its ability to sell ever-more audacious and astonishing projects to eager investors.

Almost a year on, the prospect is, if anything, even murkier. On the one hand, the $25 billion restructuring of Dubai World has been agreed by 99 per cent of the company’s creditors. A new $1 billion bond issue, announced yesterday by Dubai’s government, seems timed to take advantage of the rising confidence that may result from the Dubai World restructuring, which was finalized earlier this month. At the same time, the bond prospectus notes that government regulators have withdrawn authorization for 495 property development projects, representing about half of all planned developments in the emirate. This in addition to the numerous projects that developers themselves have canceled for lack of financing.

This would be devastating for any economy, but it is doubly so for Dubai, which depends on property and finance for over 40% of its GDP (against less than 2.5% for oil). According to an article in today’s Financial Times, government revenue fell by 13% in 2009, but the drop would have been much greater were it not for a sharp rise on other revenues such as police fines and revenues from airport and toll road user fees. Nevertheless, Dubai expects a 2010 fiscal deficit of $1.6 billion. The bond issue prospectus also shows a rise in the overall debt of the government and state-owned companies at about $28.5 billion, up from $19 billion a year ago. These numbers exclude many state-affiliated entities such as companies owned by the ruling Al-Makhtoum family rather than by the government itself. The emirate’s total debt is estimated at around $110 billion.