In a report on the state of Dubai’s real estate market, the International Monetary Fund stated: “Although Dubai would be unable to service its debt in the event of severe shocks, the outlook has improved.” Continued fiscal discipline and improved growth prospects reinforce Dubai’s resilience to external shocks.
Under a scenario projecting a severe global slowdown, Dubai’s debt would jump to 71 percent of GDP in 2019. This scenario assumes a shock to economic growth, a decline in real inflation, and a budget imbalanceexcluding interest payments.
The third scenario assumes a severe global economic slowdown accompanied by a crisis in the real estate sector, with the government assuming 20 percent of the debt of parastatal companies; in this case, debt would rise to 86 percent of GDP. The report stated: “Dubai’s ability to service its debt has improved thanks to strong economic growth and tighter spending controls, but the emirate will remain vulnerable in the event of a severe global economic slowdown.”
Following annual consultations with the United Arab Emirates, the Fund projected that Dubai’s government debt would gradually decline to 41.6 percent of GDP in 2019 from 60.2 percent last year, The projected ratio is well below the peak of 66 percent recorded in 2009, when the collapse of the real estate sector brought Dubai to the brink of default and caused turmoil in financial markets around the world, but it is still significantly higher than it was in 2007 when it stood at 15.4 percent.
The IMF projected that Dubai’s economic growth rate would average 5.6 percent over the next six years, thanks to massive real estate projects and preparations for Expo 2020; however, growth would not exceed 3.5 percent if the global economy faces a new crisis.
The IMF estimates that Dubai and its parastatal companies—whether the government holds a minority or majority stake — will have to repay approximately $141.7 billion in the coming years, or 141 percent of 2013’s gross domestic product. $92.2 billion of this debt is due before the end of 2019.
Dubai will have to repay the largest amount of loans and bonds in 2018, when $40.3 billion becomes due. However, companies such as Nakheel, which was forced by the sector’s collapse to restructure its debt, have sought in recent months to repay debts before they come due.
The International Monetary Fund (IMF) reiterated its repeated warning about the rapid rise in real estate prices in Dubai, stating that authorities agreed with the Fund during discussions that higher fees targeting specific groups may be needed to curb speculative demand for real estate.
The IMF added that the Dubai government indicated it would implement major real estate and infrastructure projects gradually and that its plans would be flexible and in line with population growth projections.
The Dubai government’s budget is expected to post a modest surplus of 0.5 percent of GDP in 2014—the first surplus since 2006—compared with a deficit of 0.3 percent last year.
The Fund said that the UAE is expected to reduce fiscal spending to 317 billion dirhams ($86.3 billion) this year from last year’s record high of 324 billion, but the budget remains expansionary to the extent that it does not allow for sufficient savings for future generations.
According to the report, spending in Abu Dhabi—which accounts for 78 percent of total UAE spending—is expected to fall to 241 billion dirhams this year, compared with about 254 billion last year. Abu Dhabi, which accounts for nearly all of the UAE’s oil production, does not announce its budget plans or regularly report actual spending figures.
