The overall economic crisis is worsening in the emirate of Dubai and the setback indicators are escalating in an unprecedented way to reach major companies and banks in the midst of the government’s inability to find solutions.
The banking sector in the UAE is in a silent crisis amid the rise in the volume of Dubai’s debt to $124 billion, after postponing the payment of half of it for the remainder of the next year and two years, in a crisis that may explode at any moment, according to observers’ estimates.
The Director General of the Department of Finance in the Emirate of Dubai Abdulrahman Saleh acknowledged that the sovereign debt of Dubai amounted to 32 billion dollars, and that the ratio of public debt to GDP of the emirate does not exceed 27.9 percent until the end of last September, while the ratio of debt service only 5 percent of the general budget.
When needed, Dubai is considering borrowing and securing financing for infrastructure projects through various means of financing, including bonds, sukuk, export guarantee, securitization and other means, to support infrastructure projects rather than operational spending, Saleh said.
“Expansion spending on infrastructure projects in Dubai is a top priority for the public budget to ensure completion as required and ahead of schedule.”
Saleh pointed out that the government of Dubai reduced some government fees in June 2018, out of its keenness to support the business sectors, stressing that this reduction has had little impact on the performance of the government budget, although it led to a decline in revenues by about two billion dirhams over 12 Months to June of this year.
According to Fitch, about $23 billion of these debts are borne by the UAE’s banking portfolios, and it is not yet known how government companies in Dubai will deal with these debts, and whether banks in the UAE will bear a new debt restructuring process, as happened during the crisis. Finance 2008.
Meanwhile, companies affiliated with the Dubai government have begun to formally acknowledge their financial crisis and that international commercial banks no longer trust them.
DP World Chairman Sultan Ahmed Saleem said the company has been struggling to borrow from banks to finance new investments since the Djibouti government took control of the Doraleh container terminal, which is partly owned by the company in 2018.
“We are investing but it costs us more,” Salim said. ”The company, one of the world’s largest port operators, opened a $ 35 million logistics platform in Kigali on Monday. “Fewer banks will lend us money today,” Salim said, without giving details.
“What bank will lend you money? What if the country where you invest followed Djibouti’s example? Djibouti has set a bad precedent. ”The government of Djibouti took control of the Doraleh container terminal from DP World in February 2018, in a dispute dating back to at least 2012.
DP World called the move illegal and the London Court of International Arbitration ruled in August 2018 that the Dubai government-controlled company’s contract with Djibouti was valid and binding. Salim said the company was still operating legally in Djibouti, although the government said the company’s operations had ceased.
The company is also active in Somalia, Mozambique, Senegal and Mali, and has signed an agreement to develop a port in the Democratic Republic of the Congo.
He pointed out that the company’s new platform in Kigali will strengthen Rwanda’s efforts to become a trade hub for neighboring countries, including the Democratic Republic of Congo and Kenya, thereby reducing import and export costs through the Indian Ocean ports of Mombasa and Dar es Salaam.
In the past decade, the emirate of Abu Dhabi was forced to rescue Dubai through a $20 billion loan at the time. Dubai has repaid only $10 billion, and banks have already started to schedule $3 billion of debt with real estate and construction companies, including Al Jaber.
This crisis comes at a very different time from the previous financial crisis experienced by the emirate of Dubai, where according to a report in Forbes magazine, this time, in addition to the collapse in the real estate sector, suffers from low oil prices and the crisis of geopolitical turmoil and military tension in the Gulf region.
Fitch said in a report that a large part of the $23 billion in loans to state-owned Dubai companies borrowed from local banks is due to be repaid by the end of 2021.
According to the US rating agency, the emirate may be forced to schedule these debts and put banks in distress amid a confrontation of the imminent collapse suffered by the UAE economy due to wars and external interventions of the ruling regime in the country.