Dubai’s Expo Win Will Boost Public Finances – Barclays

A successful Expo bid can boost Dubai’s year-to-year GDP growth to 6.4 per cent over the next three years while doubling it to 10.5 per cent by 2020, according to a Barclays report.

But a successful Expo bid will only propel the emirate’s growth as long as new borrowing is done in a fiscally sustainable manner, the report said.

Dubai has been recording strong growth with its GDP rate accelerating to 4.9 per cent year-on-year during the first half of 2013.

A recent Dubai Chamber of Commerce and Industry report showed that the emirate’s business confidence is at a record high as hopes of winning Expo 2020 gained strength.

An Expo win is also expected to impact the emirate’s public finances positively.

“We believe that the positive growth spillovers from an Expo bid win would raise government revenues by at least 0.5 to 0.6 per cent of GDP per year over the coming four years as fees and non-tax revenues rise on the back of buoyant economic activity and an expanding population that is likely to occur ahead of the Expo,” said the report.

The report estimates that even if Dubai’s capital spending in the years leading to the Expo exceeds the allotted amount, the deficit will be small.

“In the event of Dubai winning the Expo, the bulk of the investment spending will take place in parallel with other GREs,” said the report.

“Therefore, we think the Dubai government would be able to implement its Expo-related investment plans over the coming years without a major deterioration in the sovereign’s fiscal and debt position, assuming it does not need to rescue or bail out any weak GREs that may fail from restructuring or step in to repay their debts.”

With a potential Expo win, Dubai’s government guaranteed debt to GDP ratio is also expected to start declining as its fiscal position improves. This could bring the government debt to GDP down from its current level of 40 per cent to 23 per cent by 2020, said the report.

Despite authorities’ efforts to rein in expenditure, the report also said that the risk of a build-up of liabilities owing to a borrowing spree in order to support Expo-related expansion plans is possible.

Barclays estimates that the major beneficiary of a successful Expo bid is Dubai’s service sector as the emirate expects to receive more than 25 million visitors during the six-month Expo period. But the positive effects of the Expo win are expected to trickle down to other sectors as well.