DUBAI (AFP) – The International Monetary Fund said Wednesday the economy of debt-laden Dubai was expected to expand by nearly three percent this year, on the back of robust trade, logistics and tourism sectors.
“The recovery is taking hold, and we see the growth rate for Dubai this year just a little bit shy of three percent,” said Masood Ahmed, the director of the IMF’s Middle East and Central Asia Department.
“Things that are driving that process (of recovery) are the improvement in trade, logistics and tourism, all of which are doing better,” he told AFP upon the release of the IMF’s Regional Economic Outlook in Dubai.
Economists have been bullish about the prospects for the economy of the Gulf city-state, whose debt woes rattled global markets in late 2009 and whose economy contracted about 2.4 percent in 2009 after several years of rapid economic growth.
The economy grew by a mere 0.5 percent last year, the IMF said.
Citibank said last month that it expected Dubai’s economy to grow 4.5 percent this year and 6.3 percent next year, while Dubai’s Department of Economic Development put growth forecast this year at between three and four percent.
Ahmed said an agreement reached earlier this year between Dubai’s largest group, Dubai World, and its lenders to restructure billions of dollars of debt has been positive to the economy.
“The restructuring of Dubai World’s debt has been a positive step not only for itself but also for the fact that has enabled other top-rated borrowers to come to the market place.”
Dubai had borrowed heavily to finance its rapid economic growth, which came to a shrieking halt when international finance dried out in the wake of the global financial crisis in late 2008.
But it has established itself as a regional hub for business, transit trade, logistics and tourism.
Ahmed warned of continuing uncertainties threatening the recovery of Dubai’s economy, highlighting a continued saturation in the badly hit property sector, debt problems of other government-related entities and a rising cost of borrowing due to regional unrest.
“The overhang on real estate is still there. We do see that with the existing over supply and the inventory that is expected to come online over the next couple of years,” he said.
“This will be a continuing drag on the economy for sometime,” he said.
The sector grew rapidly until it crashed with the global financial crisis, sending property prices tumbling to half their peak values registered in summer 2008, and creating a supply glut.
Meanwhile, “borrowing costs have gone up throughout the region a little bit. given the fact that Dubai has to roll over $30 billion of GRE debt this year and next year, it is slightly a tougher environment in which to do that,” Ahmed said.
Estimates vary of Dubai’s total debt, including that of government-linked firms, but most say they are worth more than 100 billion dollars.
The glitzy emirate, part of the United Arab Emirates federation, was buoyed by it rich partner Abu Dhabi and the federal central bank whom together pumped $20 billion into its coffers to meet immediate debt payments in 2009.