Dubai, the glittering commercial hub of the Gulf, is facing the risk of a debt crisis reminiscent of the 2009 crash that wiped out thousands of jobs and nearly half the value of the emirate's stock market.
"Dubai is the most vulnerable of the economies in the Middle East and North Africa" to strict coronavirus lockdown measures, consultancy firm Capital Economics wrote this week.
An abra driver wears protective gloves and a face mask on March 18, 2020 in Dubai, United Arab Emirates.DUBAI, United Arab Emirates — Dubai, the glittering commercial hub of the Gulf, is facing the risk of a debt crisis reminiscent of the 2009 crash that wiped out thousands of jobs and nearly half the value of the emirate's stock market, economists are warning.
Lockdown measures in the emirate, which is home to the world's tallest building and largest mall, have seen all but essential businesses close. This "will cause Dubai's economy to contract sharply, exacerbating overcapacity in key sectors and making it more difficult for the Emirate's government-related entities to service their large debts," the firm wrote.
A picture shows the closed compound of the Dubai Mall amid the COVID-19 coronavirus pandemic on March 23, 2020 in the United Arab Emirates"If debt problems do materialise, Dubai's government is not in a position to step in given its own large debt burden," wrote Capital Economics. Dubai's sovereign debt — separate from the GRE debt — amounted to 110% of GDP in 2019, according to the IMF, placing it among the highest debt-to-GDP ratios in the world.
Pressures on the industry had already raised some worries over ripple effects on the banking sector — last year Dubai lenders extended loans worth $66 billion to Dubai's property sector, according to the UAE Banks Federation. And a Fitch Ratings report last September warned that banks "have not fully recovered" from the 2009 crash and "smaller banks are more vulnerable to deterioration in credit conditions due to thinner capital buffers and lower revenue generation.
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