Dubai starts repaying bailout loan as part of huge debt cutback
DUBAI said it began repaying a US$20 billion bailout loan from Abu Dhabi and the country’s central bank, as part of an effort to reduce its debt burden almost 15 years after the sheikhdom teetered on the brink of default.
Taking advantage of an economic recovery, the emirate lowered its total debt to 25 per cent of gross domestic product with payments that include 20 billion dirhams (S$7.5 billion) to Abu Dhabi and the central bank. Dubai shelled out a combined 28.5 billion dirhams within a year and a half, its media office said on Tuesday (Sep 26) on social media site X, citing its debt management office.
It didn’t give details as to what liabilities were still included in its calculations, and the media office wasn’t able to comment when approached separately by Bloomberg. Dubai isn’t rated by any of the three major credit assessors.
S&P Global Ratings, whose assessment includes 106.7 billion dirhams in government loans from Emirates NBD, now puts Dubai’s debt at 45 per cent of GDP this year, down from its earlier estimate of about 50 per cent and the lowest since 2011.
“The recent announcement goes over and above what we had been expecting,” S&P analyst Trevor Cullinan said by email. “We didn’t expect the government to start repaying Abu Dhabi and UAE Central Bank debt given its concessional nature.”
Boom town
Dubai’s economy is thriving, fuelled by an influx of newcomers – from crypto millionaires and bankers relocating from Asia to wealthy Russians seeking to shield assets. Sectors from hospitality to retail are enjoying a remarkable comeback, while new arrivals have pushed property prices to record levels.
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Resurgent demand for homes, hotels and office space has helped the emirate generate more fees for goods and services, as well as receipts from taxes for property transactions, value added taxes and housing fees. Although Dubai scrapped a 30 per cent tax on alcohol sales and made liquor licences free since the start of 2023, that will likely be offset by a 9 per cent federal corporate levy imposed from June.
Another revenue stream has come from Dubai’s drive to raise trading volumes in the city’s stock market by selling stakes in 10 state-owned companies such as DEWA and Salik. The emirate listed four assets last year and raised about US$8 billion, data compiled by Bloomberg show.
Though the full picture isn’t yet clear, evidence suggests a new focus in Dubai on reducing a debt load that S&P said had reached a “cyclical high” of 78 per cent of GDP in 2020. The burden has gone into decline with the creation of a debt management office last year, as the economy booms after emerging from the global pandemic as an investment safe haven and a magnet for tourists and the wealthy.
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In 2009, Dubai just skirted a default and had to turn to oil-rich Abu Dhabi, the biggest of the seven sheikhdoms in the United Arab Emirates, to support state-controlled companies through the global credit crisis. The amount has been rolled over twice since then.
S&P estimated last May that the US$20 billion in loans from Abu Dhabi and the central bank made up 30 per cent of Dubai’s gross general government debt and said it expected them to be rolled over again.
The repayments were part of a 2022-2024 debt sustainability plan that helped reduce liabilities to “a safe and low level,” the media office said, citing Rashed Ali Bin Obood Al Falasi, head of the Public Debt Management Office.
Dubai also repaid a 3.3 billion-dirham sukuk and 5.2 billion dirhams in bank loans, the media office said. The emirate rarely issues public debt and previously looked to raise capital by means of private placements and bilateral loans.
“Apart from government revenues raised due to the robust performance of the Dubai economy, funds raised by the part sale of government companies such as DEWA, Salik and Empower are also likely to be supporting the government’s ability to reduce its debt stock,” S&P’s Cullinan said. BLOOMBERG
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