Jet skis pass by residential waterfront skyscrapers in the Dubai Marina District in Dubai, United Arab Emirates, Monday, June 8, 2020.

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DUBAI, United Arab Emirates – Rating agency S&P predicts an 11% contraction in Dubai’s economy in 2020, with already high debt set to rise as some of the emirate’s vital sectors struggle to rebound after the impact of the coronavirus pandemic.

“S&P Global Ratings expects Dubai’s economy to contract sharply by around 11% in 2020, in part due to its concentration in travel and tourism, two of the sectors most affected by COVID-19 “the agency wrote in a client note last week. He sees the economy “not returning to its 2019 level until 2023”.

In recent years, tourism has accounted for around 12% of the emirate’s annual GDP, which is much more diverse than that of its heavily oil-dependent Gulf neighbors. Yet Dubai – known as a trade and logistics hub as well as a major trade and tourist attraction in the Middle East – has suffered as the pandemic has decimated the airline and hospitality industry, as well as others. sectors such as construction and real estate.

Oil only accounts for around 1% of Dubai’s GDP, but its neighbors’ much higher dependence on hydrocarbons means that falling oil prices have reduced the capacity of regional partners for investment, tourism and transportation. trade.

“We estimate, based on publicly available information, that Dubai’s gross public debt will reach around 77% of GDP in 2020,” which stands at AED 290 billion ($ 80 billion), said S&P.

“However, a broader assessment of the public sector, including government-related entity (GRE) debt, indicates a debt burden closer to 148% of GDP,” S&P wrote.

London-based consultancy Capital Economics estimates that over the next three years some $ 21 billion of Dubai’s GRE debt will mature – which it calculates at 19.4% of GDP – and an additional $ 30 billion in 2023.

The Dubai government, however, released its own assessment in a rare debt issue in September to reveal a significantly lower debt figure: AED 123.5 billion at the end of June, or around 28% of GDP.

Dubai debt: conflicting figures

The question of Dubai’s debt level is a tricky one and boils down to how debt is calculated: the Dubai government does not include debt owed by government-related entities, or GREs, while rating agencies as S&P and Moody’s attempt to do based on available information on local borrowing, GRE debt is privately issued and unrated.

“Rating agencies are in a delicate position when it comes to Dubai,” Nasser al-Shaikh, former head of Dubai’s finance department, told CNBC. Al-Shaikh rejects agency figures. “Since it is not valued, their estimates were simply wrong, as shown by the disclosures made by Dubai when it recently raised $ 2 billion – which of course has been oversubscribed on several occasions.”

Dubai returned to government debt markets in September for the first time in six years, successfully issuing $ 2 billion in debt in the form of a $ 1 billion Islamic sukuk and government bond. of $ 1 billion. The value of orders has exceeded 10 billion dollars.

Airplane operated by Emirates, at Dubai International Airport in the United Arab Emirates.

Christophe Brochet | Bloomberg | Getty Images

“Sovereign debt is only that which (the government of Dubai) is legally responsible for the debt owed to the government, its public institutions and the commercial debt that carries its guarantee,” Al-Shaikh said in response to the S&P report. “ERGs are commercial entities that borrow on commercial terms and it is entirely up to the Sovereign to decide whether or not to help them financially.” So far, he noted, Dubai’s only sovereign public commitment has been to back its flagship carrier Emirates Airline with a lifeline of AED 7.3 billion.

In this way, the government aims to delimit what debt it is responsible for and what it is not. Rating agencies, on the other hand, try to cover all possible liabilities.

The emirate suffered a debt crisis in 2009, triggered when the major ERGs were unable to repay their debts, which led Dubai to rely on the support of the UAE’s capital, Abu Dhabi, in the form of billions of dollars in loans and bonds that have since been constantly renewed as they come due. But the rating agency does not foresee a similar situation this year.

“Although we do not anticipate such a need, in the event of financial distress, we do expect Dubai to receive additional financial support from the United Arab Emirates, with support from Abu Dhabi,” S&P wrote.

The Dubai Economic Department did not respond to a request for comment.

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