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Dubai seen ‘muddling through’ current phase

|By Arabian Post Staff| Despite external debt remaining at tight spreads due to still-high leverage and refinancing challenges, Dubai will muddle through the current crisis in terms of debt rollovers, Bank of America-Merrill Lynch said in its latest research.

Although the investment bank expects the local bid on the shorter end to weaken due to low oil prices, it sees chances of less supply risk for Dubai than in other GCC countries. Of course, there are downside risks such as a prolonged period of low oil prices, regional geopolitical threats, a loss of competitiveness due to a stronger USD, material domestic liquidity tightening, a real estate collapse, increased borrowing for projects with low return and global risk aversion, which may cut market access to Dubai, says Merrill Lynch .

On the upside possibilities is the Iran-P5+1 Deal, which could boost trade activity in Dubai, it points out.

In the case of Abu Dhabi the bank has issued a Marketweight recommendation on the UAE capital’s. external debt as it is tightly held due to its scarcity value. The sovereign’s balance sheet remains robust with a large stock of foreign assets, despite fiscal deterioration.

Abu Dhabi’s downside risks are a prolonged period of low oil prices, regional geopolitical threats, and inability to implement sufficient fiscal consolidation. Upside risks are a rebound in oil prices, improved local liquidity and more vigorous fiscal consolidation to slow drawdown of foreign assets.