Dubai’s debt burden set to tumble to 51% of GDP

Dubai Media Office

• The emirate’s government debt was 78% of GDP in 2020, said S&P
• Dubai has repaid $2.9bn in bonds, plus bank loans, in past 3 years
• Wider public sector debt remains around 100% of GDP

Dubai’s government debt is forecast to fall to 51 percent of GDP this year, according to S&P Global Ratings, after the emirate repaid some of its outstanding bonds and loans.

The figure is down 27 percentage points from a 2020 peak, the ratings agency wrote in a report published on Monday. Yet broader public sector debt, which includes Dubai’s government-related entities, will remain at about 100 percent.

The emirate roiled international markets in 2009 when it defaulted on some of its debts. This was followed by a multibillion-dollar debt restructuring programme, damaging Dubai’s reputation, and emergency financial support from Abu Dhabi and the central bank of the UAE.

Since then, Dubai has regained investors’ confidence as it became a safe haven for people and capital fleeing strife in the Middle East and beyond. A post-pandemic boom has reignited its real estate sector and bolstered government income.

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Dubai’s gross government debt will fall to $66 billion this year, S&P forecasts.

The rating agency added that the emirate had repaid $2.9 billion in bonds between 2020 and March 31 this year and had reduced its loans from government-controlled bank Emirates NBD by 30 percent over the same period.

Of Dubai’s remaining debts, 44 percent is owed to Emirates NBD, 30 percent constitutes the $20 billion in loans provided by Abu Dhabi and the UAE’s central bank in 2009, and 26 percent is other borrowings.

Dubai has twice rolled over the Abu Dhabi and central bank debt, most recently in 2019 for five years at an interest rate of 1 percent.

“Despite a declining government debt burden, Dubai’s sizeable public sector debt and relatively limited assets constrain its ability to absorb economic shocks,” S&P wrote.

The emirate’s economy will expand by 3 percent this year, the agency predicts, down from an estimated 5 percent in 2022 as the post-pandemic rebound slows.

Hospitality, real estate, trade and financial services industries will drive GDP growth, which will remain at around 3 percent for the next two to three years, according to S&P.

“The robust recovery of the real estate and tourism sectors should help some government-related entities to deleverage,” the report states.

Initial public offerings of several Dubai-owned companies have netted the government around $8 billion. Further flotations – the emirate is planning 10 IPOs – could enable it to cut its debts further.

Dubai’s launch of a government debt management office in 2022 “should help further improve the structure of its debt, perhaps by lengthening maturities, diversifying funding sources and developing an efficient market for government securities”, S&P wrote.

Transparency in Dubai’s debt-related data disclosures should also improve, although “significant shortcomings remain”, the report added.