Dubai total debt payments equal 20% of GDP for next 2 years

Asset sales are still on the cards as Dubai Inc faces around $30bn worth of debt repayments over the course of the next two years, according to the latest research from a Saudi bank.

Samba Financial Group estimates that the emirate’s total government debt stands at $31.5bn – equivalent to 38 percent of GDP – over half of which has been taken out to support struggling government-related enterprises (GREs) such as Dubai World and Nakheel.

The bank has put the total sum owed by Dubai GREs at $77bn, and said that that debt remains a risk as the government may be pushed into absorbing further liabilities.

“Markets remain willing to finance the government which recently successfully issued another $500 million bond,” the research note stated.

“However, with total Dubai Inc repayments [government and GRE debt] exceeding $30 billion in 2011-12, restructuring, refinancing and new borrowing is unlikely to be sufficient and considerable amounts will still need to be raised through asset sales.”

Samba said that the government’s liabilities were manageable, but that the direct repayment burden was still large due to limited fiscal revenues of around $8bn a year, especially given the budget deficit of between $1bn and $1.6bn a year.

Direct government debt repayments (not including GRE debt) are set to spike at an estimated $20.6bn in 2014, when borrowings to fund GREs mature.

“Improvements in GRE finances will be key to the long term financial health of the emirate, and their repayment of the Dubai Financial Support Fund as planned is necessary to avoid the otherwise unaffordable spike in government repayments in 2014,” the report added. 

“However, it seems more likely that the government will extend repayments due and seek to roll over the $10bn notes held by the central bank, and possibly the financing from Abu Dhabi via its banks.”

The IMF recently warned that unless Dubai was able to increase its fiscal revenues, the debt-to-GDP ratio would rise to 47.4 percent next year, and to 60 percent by 2016.