Introduction
In 2009, the U.A.E. witnessed a significant slowdown in growth and strains in the banking system as a result of the global financial crisis, the decline in oil prices, and the continuing fallout from the bursting of the Dubai property bubble. The ramifications of the DW debt event will depend on the scope and modalities of the debt restructuring, its impact on the financial sector, and the strategy being developed by the Government of Dubai (GD) to put Dubai World (DW) and possibly other corporate entities on a viable economic and financial footing.

Improved global conditions, especially out of Asia, will fuel Dubai’s logistics and service sector. However, the correction in the over-extended property and construction sector renders the overall outlook highly uncertain. With foreign investor confidence shaken and international capital markets less accessible, Abu Dhabi’s policy of selective support to Dubai will play an important role in limiting contagion to the U.A.E. economy and the banking system.

.
Key issues

  • The contrast between growth based on hydrocarbon resources and that based on non hydrocarbon diversification funded by maturity-mismatched leverage
  • The spillover effects and financial support structures in the federation
  • The volatility of markets in response to a lack of information disclosure and transparency
  • In particular, the debt announcement undermined the widely held market perception of implicit government support, including from Abu Dhabi

More >