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Thu 15 Sep 2016 12:09 PM

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'Immense need for close monitoring' of Dubai debt, warns analyst

Debt pile to reach 129% of GDP this year; $51bn of debt due to mature before 2018

'Immense need for close monitoring' of Dubai debt, warns analyst

With Dubai’s debt pile expected to amount to 129 percent of gross domestic product (GDP) this year, there is an “immense need for close monitoring” of debt management, according to a report from SICO Bahrain.

The investment bank said that while Dubai’s total public debt “appears to be better positioned to weather shocks”, government-related entities (GREs) could be affected by tighter government finances and liquidity, which could result in higher financing costs.

The firm said Dubai’s total debt had risen by 8 percent on annual average basis over the last five years, and that $51 billion of debt will mature between 2016 and 2018.

Of that sum, $20 billion is owed to the government of Abu Dhabi and the UAE central bank, although the facility is renewable every five years.

The report said the cost of the interest on Dubai’s debt was expected to reach $600 million this year, which will account for 5 percent of the city’s revenues.

“Dubai Government’s key maturities (especially between 2016-2018) amid tightening domestic and regional liquidity, and heightened competition from governments to finance deficits, will increase short-term debt rollover risks, thereby translating into a higher cost of funding,” the report stated.

“This will ultimately increase the strain on Dubai’s debt servicing capacity and budget expenditure, while also impacting the financial system.”