Dubai's GDP to rise this year despite deficit, says Moody's

Infrastructure spending keeps construction buoyant but total public debt is rising
Dubai's GDP to rise this year despite deficit, says Moody's
The Government of Dubai expects to record a $680 million (AED2.5 billion) budget deficit in 2017 but this will have a minimal impact on public debt levels, a Moody’s report has concluded.
By Sarah Townsend
Wed 01 Feb 2017 11:19 AM

The Government of Dubai expects to record a $680 million (AED2.5 billion) budget deficit in 2017 but this will have a minimal impact on public debt levels, a Moody’s report has concluded.

The rating agency’s report noted that the forecast deficit set out in Dubai’s 2017 budget late last year is driven by a 2.8 percent annual drop in revenue and 26.6 percent increase in infrastructure spending.

However, the report said the rise in infrastructure spending will support the construction industry and GDP growth at a time when most GCC governments are reducing spending and economic activity is slowing.

Dubai, on the other hand, is likely to see its real GDP rise to 2.9 percent from an estimated 2.4 percent in 2016.

“Moody’s doesn’t expect the 2017 deficit (0.6 percent of GDP) to have a material impact on the government’s debt levels” the report said.

While total current spending will fall slightly (-1.3 percent) in 2017, the 26.6 percent rise in capital expenditure to AED8.1 billion ($2.2 billion) is expected to offset any dampener on growth.

Moreover, the emirate has recorded balanced budgets since 2013, which has enabled it to reduce its direct government debt levels to around 25 percent of GDP in 2015 from 33 percent in 2010.

Dubai has also rebuilt fiscal buffers and reduced risks from contingent liabilities by restructuring several government-related issuers since 2009, said Moody’s.

However, the report warned Dubai’s total public debt, including government-related entities with majority ownership, is rising and remains high at 128.7 percent of GDP in 2015 (compared to 113 percent in 2010).

A 25 percent year-on-year drop in the value of real estate transactions in 2016 – demonstrating lower capital inflows from India, the Commonwealth of Independent States (CIS) and GCC – and lower hotel revenues and tourism spending, is having a negative impact on the emirate.

Moody’s said it expects total public debt will rise gradually to 30 percent by 2018.

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