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

Reuters

Published May 31, 2020 14:26

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 (N:BAC) 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 (DU:ENBD), 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.