For the past two years governments have spent close to US$12 trillion and central banks have held interest rates to near zero to end the financial crisis. Even so, as to be expected, most of the previous excesses were never quite worked off.
In Dubai, residential real estate prices have dropped more than 50%. Across the UAE, some $450 billion of construction work had been scrapped.
Recently, Dubai World, the UAE’s largest state-owned conglomerate, announced that it would impose a six-month standstill on debt repayments.
Dubai is not rich in oil. It borrowed heavily to fund its grand ambitions. Nakheel, a government-sponsored developer, used part of these borrowed funds to develop the Palm Islands and other spectacular land reclamation projects.
Dubai’s sovereign and state-controlled companies’ debts could reach $80 billion, in excess of its GDP.
Dubai World was technically not government-backed, but investors had perceived it to be so and acted accordingly.
Wall Street tells us that government debt is “risk-free.” Don’t you believe it. History is littered with sovereign defaults.
Dubai’s oil-rich neighbours – Saudi Arabia, Kuwait, Qatar and Abu Dhabi – command two thirds of the world’s oil and 45% of gas reserves. Debts levels are very low and high oil prices have enabled them to accumulate more than $1 trillion in reserves.
However, it is always possible for oil to drop below $40 per barrel.
No comments:
Post a Comment