|By Arabian Post Staff| The low oil prices are likely to dampen the impact of Iran deal for Dubai, although the emirate will be the main beneficiary in the region from the opening up of Iran’s domestic market, Bank of America-Merrill Lynch said in its latest report.
“We still think that normalized external financing flows and macro reforms in Iran will be required to support sustainably higher import demand from Iran as its external accounts come under pressure of low oil prices,” BoA-ML analysts Jean-Michel Saliba and Turker Hamzaoglu said.
In terms of energy markets, unyielding Saudi energy policy is likely to potentially exacerbate market share competition within OPEC, they pointed out.
The report believes that Dubai’s announced budget may be optimistic on the fiscal revenue side in the context of slower economic activity that is likely to drive slower growth in government fee income receipts. But it feels Dubai Inc. will manage to roll over debt in 2016, although this will likely become increasingly challenging. Nakheel is likely to be supported, if needed. Abu Dhabi support is likely to remain the ultimate sovereign backstop on systemic issues. However, further eventual Dubai Inc. restructurings may take place over a longer horizon, and differentiation should be made between credits with explicit guarantees and those lacking it.
The report sees Dubai external debt at tight spreads given still high leverage and refinancing challenges while Abu Dhabi and Qatar’s savings cushion sovereign creditworthiness.
For GCC in general, despite the fiscal consolidation plans for this year, oil price weakness threatens to undo all the spending restraint given the macro sensitivity to oil prices. As a result, the report forecasts increased sovereign issuance as oil prices move below the levels budgeted for and worsen the fiscal gaps.