But now, Dubai’s flagship airline has successfully marketed a $1 billion bond, hotels have attracted thousands more guests and unrest across the Middle East has persuaded some businesses to move some their offices to the more stable emirate.

“At one point I had investors tell me they didn’t want Dubai at all in their portfolios,” said a banker. But the success of Emirates bond this month, attracting orders of over $6 billion, is one of the clearest signs yet of returning confidence and served to show the airline’s importance to Dubai’s economy and international image. “Being able to get any airline debt away in a world with $100 plus crude oil prices, the biggest component of an airline’s costs, is impressive,” said Daniel Broby, chief investment officer of UK based asset manager Silk Invest. “The fact that it was a Dubai-based airline is even more impressive.”

Appetite for Dubai debt has been rising in recent months, and CDS levels have sunk back to pre-2009 crisis levels. Not only is the Dubai government planning to issue new bonds this week after a London investor road show, but it recently announced an extension of its bond program to $5 billion. The pick-up in sentiment is a far cry from November 2009, when Dubai World’s plan to restructure about $25 billion in debt sent investors fleeing practically overnight and translated into negative growth for the once high-flying economy.

There is also an unavoidable sense of optimism. In 2010, Dubai’s GDP per capita was just under $42,000, one of the highest in the world. Driven by trade, financial services and tourism, Dubai’s economy recovered in 2010 with 2.4 percent growth and is projected to expand by another 3 to 3.5 percent this year. In contrast, the World Bank expects 1.9 percent growth in the Middle East and North Africa in 2011. Cranes are purring back to life and tourists are flocking back to Dubai’s delights such as a ski slope in the desert, one of the world’s largest shopping malls and its tallest tower. Businesses and capital inflows into Dubai — though hard to quantify accurately — have also increased largely because of political uncertainty in Bahrain, a well established financial hub in the region, money managers and bank executives say. Many companies have shifted offices or staff to the city, while UAE bank deposits climbed to their highest level in at least more than two years in April. “Companies are physically moving to Dubai — for some, the regional unrest is an opportunity to have a reasonably large presence in Dubai,” said Ghanem Nuseibeh, founder of Cornerstone Global Associates and senior analyst at Political Capital.

But Dubai has been accused of storing up its troubles by postponing debt payments rather than resolving them. Dubai World’s 2010 debt deal delays repayment to after five and eight years, and no Dubai asset sales have yet been announced. The emirate faces about $30 billion in redemptions over the coming two years and refinancing risk remains one of the biggest investor concerns. Issues of creditors taking over assets and enforceability are extremely politically sensitive. “A lot of debt restructuring was for five years or seven to eight years,” said Monica Malik, chief economist at EFG-Hermes. “While this gave a sort of breathing space in the shorter term, you still have the issue to try to reduce these debts in the medium term.”

Despite a recovery in global trade and more stability in the banking and property sectors, Dubai’s economic expansion is far behind growth rates seen during the oil and property-fuelled boom years before the global credit crunch struck in 2008. The size of the emirate’s economy shrunk by 14 percent in 2009, and the overall debt load of Dubai and its companies is estimated at $115 billion or 140 percent of its economic output, not far below 143 percent for debt-troubled Greece. UAE private sector credit growth has been anaemic, at a mere 2.0 percent in February, compared with annual rates of well over 50 percent in 2008, when a construction frenzy peaked. Increased deposits have so far failed to kick-start lending. But Dubai’s saving grace — once again — may prove to be the widely-help assumption that neighbouring Abu Dhabi, the wealthiest of the seven emirates, will be ready to shoulder the burden if, and when, required.