## IMF Survey: IMF Says Dubai Debt Fallout Contained, Events Still Unfolding

_IMF News, December 4, 2009_

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## Bibliographic details
- Published: December 4, 2009

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### Immediate response and containment
- Event timeline:
  - Dubai announced it would seek a standstill on the debt of Dubai World on November 25.
  - The Central Bank announced a supplementary liquidity facility and reaffirmed it stands behind banks in the United Arab Emirates on November 29.
  - Dubai World announced it would restructure debt amounting to $26 billion in a November 30 statement.
  - Dubai World indicated on December 1 that it would strive for equitable treatment of creditors.
- Key containment actions:
  - Central Bank’s supplementary liquidity facility and public support for UAE banks helped calm markets, especially because these banks hold some Dubai World and Dubai Government debt.
  - Dubai World’s engagement with creditors and clarification of the size and scope of debt to be restructured reduced market uncertainty.
- IMF emphasis:
  - “Engagement and communications with creditors and investors will be critical to ensure an orderly and timely solution.”
  - “The debt restructuring process now needs to be taken forward.”

### Debt restructuring details
- Total restructured debt announced: $26 billion.
- Real estate component: $6 billion related to Nakheel, Dubai World’s real estate subsidiary.
- Exclusions from restructuring process:
  - Non-real estate corporations such as Infinity World Holding, Istithmar World, and Ports & Free Zone World (which includes DP World, Economic Zones World, P&O Ferries, and Jebel Ali Free Zone) were specified as not included.
- Market signaling:
  - Commitment to equitable treatment of creditors expected to have a positive impact on markets.

### Regional economic implications
- Short-term growth outlook:
  - Recovery of Dubai’s economy is very likely to slow down, resulting in another year of slight contraction in the non-oil GDP.
  - The UAE as a whole is expected to still register positive growth in 2010, albeit below the 3 percent pre-crisis forecast.
- Sectoral outlook:
  - Global trade and services: poised to recover with global growth, particularly in Asia.
  - Property sector: expected to take longer to bounce back due to:
    - dented confidence and lowered reputation affecting equity valuations, risk premia, and access to international markets;
    - more restrictive credit conditions as a result of increased risk aversion;
    - financial losses from restructured obligations impacting corporate and household balance sheets.

### Global impact and channels of spillover
- Direct financial effects:
  - Direct financial effects on international banks appear to be contained.
- Key variables determining broader implications:
  - perceptions of risk in the Gulf Cooperation Council countries and quasi-sovereign debt markets;
  - potential sales of some Dubai World assets and consequent reevaluations of certain asset classes globally, especially commercial property;
  - handling of Dubai World’s debt restructuring and the effect on investment flows into and from the UAE.
- Nonfinancial channels that could transmit effects to the region:
  - foreign direct investment;
  - trade;
  - remittances;
  - sells-offs of Dubai World assets.
- Uncertainty and mitigation:
  - Considerable uncertainty around the scope and magnitude of these effects as the event is still unfolding.
  - Impact would be muted because of recovery and growth in the region as a whole.

### Implications for investors and quasi-sovereign entities
- Risk assessment shifts:
  - The event is likely to have an impact on future risk assessments of quasi-sovereign entities and on the degree of transparency that investors demand.
  - “Investors will start to look more carefully at implicit guarantees. There will be also a broader reassessment of quasi-sovereign commercial risks.”
- Policy and transparency recommendations:
  - Transparency and the timely provision of informative data on quasi-sovereign commercial entities would be crucial for such corporations’ access to international investors.

*IMF Survey: IMF Says Dubai Debt Fallout Contained, Events Still Unfolding (December 4, 2009).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [In The News](https://www.imf.org/en/news/search)
- [Transcript of briefing](http://www.imf.org/external/np/tr/2009/tr120209.htm)
- [UAE and the IMF](http://www.imf.org/external/country/ARE/index.htm)
- [IMF press release](http://www.imf.org/external/np/sec/pr/2009/pr09433.htm)
- [Middle East regional outlook](https://www.imf.org/external/pubs/ft/reo/2009/MCD/eng/mreo1009.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar120409a_