DUBAI, (AFP) — The International Monetary Fund said Tuesday it was downgrading its economic growth forecast for the United Arab Emirates due to the “drag” of the Dubai real estate sector.
Overall gross domestic product in 2010 would be “about flat, between Zero percent and one percent,” Masood Ahmed, the IMF’s director of the Middle East and Central Asia, told reporters in Dubai.
He added the debt problem of state-firm Dubai World, which is negotiating the restructuring of some 22 billion dollars in debt, would “have some effect on the UAE economy for this year and also for next year.”
“We expect a continued contraction in Dubai, and a positive growth in Abu Dhabi,” the oil-rich leading UAE partner, he added.
“As far as Dubai is concerned, the delay in recovery… will result in the year as a whole in a small contraction. This will be compensated by Abu Dhabi’s growth,” he said.
Ahmed said non-oil economic growth in the UAE will be near flat “due to a continued drag from real estate in Dubai,” which saw property prices drop by half since the global financial crisis hit the once-booming emirate in autumn 2008.
He said last year’s GDP of the UAE contracted by 0.7 percent, after the fund had projected it to shrink by 0.2 percent.
The IMF was forecasting the UAE economy to grow by 2.4 percent in 2010, according to the fund’s World Economic Outlook in October.
In November, Dubai sent jitters throughout global markets when it said it wanted to request a freeze on debt repayments by its largest conglomerate, Dubai World.
The group paid up Islamic bonds worth 4.1 billion dollars which were due on December 14, narrowly escaping a default, thanks to a last-minute five-billion-dollar lifeline from Abu Dhabi.
Ahmed praised the Dubai government’s “cooperative” approach to the restructuring of Dubai World’s debt, but pointed out the process would take some time.
“We are very encouraged by the commitment of the authorities to continue with the restructuring in a cooperative way. This is very important,” he said, underscoring the restructuring also extended to the operations of the troubled subsidiaries themselves.
“That’s why we believe it will take time,” he said.
Ahmed added, however, that Dubai would benefit from a pick-up in demand for services from the region and emerging markets, in light of an anticipated global recovery.
Dubai has built a modern infrastructure in recent years that is unmatched in the region. It has also established itself as the regional hub for tourism and financial services.
But the debt-financed boom has resulted in a huge debt burden whose exact figure remains disputed.
Dubai’s debt was reportedly in autumn around 80 billion dollars, mostly owed by state corporates. But EFG-Hermes regional investment bank said last week Dubai’s total debt could be as much as 170 billion dollars.