Dubai refinances debt

Read it at the Financial Times.

DuDebt

Zawya

If the emirate does not act, Dubai's government debt is estimated to increase to 41% of GDP by the end of 2016. In the absence of fiscal consolidation, however, it is projected to reach 53% by 2016, the IMF warns.
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Dubai's debt may become unsustainable in the absence of policy change, according to the International Monetary Fund (IMF) in its periodic report on the UAE. The IMF blames debt piled on by government-related entities (GREs) for raising Dubai' fiscal vulnerability. "Dubai's gross government debt, including guarantees, increased from 1.6% of Dubai GDP in 2007 to 10.3% in 2008 and 34% as of end-2010. This was mainly due to the bailout of GREs," the IMF notes.

The Fund argues that the UAE government data does not paint a true picture of public sector debt, adding that GREs in the emirate's real estate sector are especially vulnerable.

The IMF's May 23rd country report for the UAE calls for the government to control the borrowing of GREs that the UAE has instituted through Debt Management Offices (DMOs):

Containing GRE borrowing is key for fiscal sustainability at the emirate level and requires a strong institutional framework. This could be achieved through limits on GRE borrowing, which could be defined by individual governments and communicated through the fiscal coordination committee. The various DMOs would monitor compliance with these limits; while the federal DMO could ensure information-sharing and disseminate data on public sector debt by emirate. To enable this mechanism, the current federal draft law on public debt should clarify the relations between the federal and emirate-level DMOs and expand its coverage to Emirati GREs. The draft law also needs to define better the federal DMO’s scope and objectives; and specify coordination mechanisms between the DMOs, and fiscal and monetary authorities within clearly defined roles and responsibilities.

The Executive Summary of the report is here.

Dubai World may offer 60% on money owed

Dubai stocks fell again, though only slightly, and the price of insuring against a default in the city-state rose on Monday, on the second day of market upheaval following news that flagship corporation Dubai World may offer creditors just 60% of the money they are owed as part of a deal to reschedule $22 billion in debt.

Full article at the WSJ.

More:

The wider spread [r.e. credit default swap insurance] reflects "a combination of…a massive debt buildup, overreliance on short-term debt of variable quality and help by a wealthy neighbor," said credit strategists at BNP Paribas SA in a note to clients. "While all eyes are on Greece, it is worth keeping an eye on the situation in Dubai where considerable uncertainty prevails."