“Having saved a large proportion of the oil windfall of recent years, ample public funds are available to the UAE to meet all debt obligations, and recovering oil revenues will swell resources further,” Keith Savard, Director of Economic Research for the Riyadh-based Samba Financial Group, told Khaleej Times.
Markets remain concerned over the high debt levels of Dubai and the large repayments that are due this year, including a $ 3.5 billion sukuk repayment in December owed by property developer Nakheel, said Savard, who prepared Samba’s mid-year economic report on the UAE.
He wondered about the mechanism that the federal government would use to provide support and ensure that repayments are met, particularly those owed by Dubai government-related entities.
However, he said: “With government support all debt obligations will be met, as was demonstrated in the past.”
Savard, speaking by telephone from London, said that he expects Dubai, like rest of the region, to recover from the financial crisis by the middle of next year. The real estate market in the UAE is expected to undergo an ongoing price correction in 2009, though property prices should hold up better in oil-dominated Abu Dhabi, he said.
“One key question about Dubai is the recovery of its real estate sector,” where Savard said prices have fallen by 30-50 per cent over the past 12 months.
“Dubai’s greater emphasis on real estate development, its larger risk of oversupply, and deeper integration with the global economy suggest a more prolonged correction.”
Dubai’s construction sector will continue to face challenges in the near term because excess supply must be absorbed from the market. Another issue is the emirate’s diminishing expatriate population, Savard said.
“Overall, it seems plausible that the UAE’s population could contract by up to two per cent in 2009, mainly due to developments in Dubai. This will have an adverse impact on consumer demand, including for real estate.”
In his report on the UAE, the economist said that credit growth in the Emirates is expected to slow to 5 per cent in 2009, though domestic liquidity conditions will continue to improve, buoyed by higher oil prices and government efforts to ease financing constraints.
Samba projects that the UAE’s consolidated fiscal accounts will remain broadly in balance, after years of large surpluses. It expects the current account to remain in surplus, albeit considerably reduced at 1.4 per cent of gross domestic product, or GDP, compared with 22 per cent in 2008.
The bank also forecasts that official reserve levels will stabilise at around $ 30 billion.
“In line with our $ 65 (per barrel) oil price forecast, both the fiscal and current account balances are projected to return to surpluses of above 3 per cent of GDP in 2010,” it said.
