The ugly snout of GRE debt rears up again

Posted on May 22, 2012

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Just when you thought it was safe to go back in the water… the ugly snout and serrated teeth of the debt shark have reared up again, with the International Monetary Fund saying that the UAE’s government-related entities, or GREs, will find it tough to rollover and refinance their outstanding debt this year and the next. The IMF cites a volatile global financial environment to predict that the UAE will need to seek more diverse sources of refinancing the USD 30 billion of debt that becomes payable this year and the USD 24 billion due next year as European banks continue to deleverage.

The IMF put the total debt of UAE GREs at USD 184.8 billion in March 2012, representing 51.3% of gross domestic product in 2011, considered pretty high compared to the global average. Abu Dhabi GREs’ debt stood at USD 100.6 billion in March, or 45.6% of the emirate’s GDP, while Dubai GREs owe USD 84.3 billion, or 60.4% of GDP. The numbers show a drop in Dubai GREs’ debt from USD 89.4 billion in 2010 compared to a rise from USD 92.9 billion in the case of Abu Dhabi’s GREs.

Does this portend another period of panic for the UAE economy? Perhaps not. The IMF goes on to say that improved economic prospects in the UAE, with non-hydrocarbon GDP growth picking up, were improving asset prices and cash flows of the GREs. As most GREs are likely to use cash from asset sales to repay part of the maturing debt, this is good news.

The IMF estimated the UAE’s real GDP growth in 2011 to have reached 4.9%, with non-hydrocarbon growth strengthening to around 2.7% on the back of trade, logistics and tourism growth. The UAE economy grew by 3.3% in 2010 after contracting by 3.2% in 2009.

The UAE, and Dubai in particular, has scaled back some of the grandiose plans hatched during the period of irrational exuberance. The country appears to be settling into a more sustainable growth pattern. We hope this continues; another rush of blood like the one witnessed between 2004 and 2007 may get those deadly fins circling around the economy once again.

— Yazad Darasha

More intelligence on UAE debt:

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Posted in: Economy