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Dubai faces 5.5% recession this year as $10 billion debt repayments loom, BofA says

Monday June 1, 2020

People walk near The Gate building at the financial and business district Dubai International Financial Center (DIFC) in Dubai, February 2, 2012. REUTERS/Jumana El Heloueh

DUBAI (Reuters) - Dubai could see a recession of around 5.5% in 2020 as it faces about $10 billion (8.1 billion pounds) in debt maturities this year while revenues are expected to drop in line with the pattern of the 2009 crisis, Bank of America (BAC.N) said in a research note.

Measures to stem the spread of the coronavirus have dealt a blow to Dubai’s economy, bringing vital industries like tourism and aviation to a near halt.

Bank of America estimates that Dubai’s fiscal deficit could widen to $4.4 billion, or 3.9% of GDP, and could be as high as 5.3% if interest payments on a loan from Emirates NBD (ENBD.DU), Dubai’s biggest lender, are included.

Financing of the fiscal deficit or liquidity injection into government-related entities (GREs) will likely primarily be via loans from ENBD, Bank of America said. Dubai could also draw on $1.4 billion in deposits at ENBD or issue privately placed bonds.

International Monetary Fund data puts Dubai government and GRE debt at 110% of GDP, unchanged in nominal terms since the 2009 global financial crisis, but Bank of America said “more corporate distress” was possible in a sustained downturn.

“Sustained revenue losses could generate corporate solvency concerns if the recovery is shallow,” it said.

Citing IMF data, the bank said Dubai and government-related entities face some $10 billion in debt repayments this year.

It said it expected the government and banks to receive support from oil-rich Abu Dhabi and the UAE central bank, if needed, but that debt redemptions from Dubai government companies in the coming years were more at risk.

Sources told Reuters this month that the governments of Abu Dhabi and Dubai were discussing ways to prop up Dubai’s economy by linking up assets in the two emirates. Dubai denied the report.


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