By Soren Billing
Economists say it is now vital for gov't to address shortage of liquidity in country.
Business sentiment in the UAE is on the rise, heightening the importance of the government addressing the liquidity crunch, Standard Chartered said on Thursday.
Markets have reacted positively to the news that Dubai will be able to meet its financial obligations this year, with the Dubai Financial Market posting its biggest daily increase on Monday since November 17, racking up a 7.91 percent increase as it closed at 1,652 points.
“Sentiment is improving and with momentum now turning positive there is an opportunity for policymakers to step up their efforts to improve liquidity in the UAE economy,” a team of Standard Chartered economists wrote in a note to investors.
Dubai’s government said on Wednesday that the $10 billion in bond proceeds from the UAE central bank will be sufficient to cover the emirate’s debt refinancing needs this year.
Real estate firms in Dubai would be among the first companies to benefit from the $20 billion bond programme.
The second, $10 billion tranche will be issued within the next two to three years when needed, the deputy chairman of the UAE Central Bank said on Wednesday.
Standard Chartered has now joined the long line of pundits hoping like hell things will turn around without offering any actual reasons for the economy to rebound. On the one hand, the Dubai real estate firms were bailed out, not given a stimulus, which is something altogether more honest and robust.
It is now the turn of Oman government to address the liquidity crunch. Oman economy has slowed down, but has not been affected as much as Dubai and to keep the situation under control, rather than deteriorate, Oman government needs to take steps / corrective actions, where necessary. To begin with, the Central Bank needs to give a nod to the banks to support the corporate houses, rather than tighten the credit. In these difficult times when the banks need to work with the corporate houses and not tighten the noose, by rescheduling the facilities.
Moodyâ€™s Investors Service said that the bond program could support debt ratings of six Dubai companies that the service had placed under review for a downgrade earlier this month. The six companies were Emaar, DP World, DIFC Investments, Dubai Holding Commercial Operations Group, Dubai Electricity and Water Authority and the Jebel Ali Free Zone. However, the fact that the Dubai government requires such a large amount of financial support is also a reflection of the serious challenges that Dubaiâ€™s economy faces. Also, lack of clarity on the exact balance sheet positions was a cause of concern. Clearly, there is some variance in estimates of borrowings for the region and this will continue to contribute to investor apprehension about UAE risks generally.