Dubai’s debt burden to drop to 51% in 2023, says S&P Global

The government’s debt stock could fall even faster if the reduction in nominal debt continues over the coming years

May 23, 2023

Dubai’s government debt load will decline as a share of GDP in 2023, S&P Global said in a report, citing the robust economic growth that is set to benefit from the UAE’s wide-ranging social and economic reforms and support the city’s medium- and long-term economic growth prospects.

“We forecast a reduction in government debt to about 51 per cent ($66bn)of GDP in 2023 from a cyclical high of 78% in 2020,” said S&P Global.

Dubai has been repaying its debt, including $2.9bn in bonds from 2020 to first-quarter 2023 and reduced its loans from Emirates NBD by 30 per cent over the same period.

Should the government continue to reduce nominal debt, S&P Global said the debt stock could fall even quicker. The rating agency placed broader public sector debt, which counts liabilities from non-financial government-related entities (GREs) – around 100 per cent of GDP.

The robust recovery of the real estate and tourism sectors should help some GREs to deleverage and reduce rollover risks amid current favourable operating conditions.

The components of S&P Global’s gross general government debt estimate for 2023 include 44 per cent in loans from Emirates NBD, $20 billion in loans extended by Abu Dhabi and the Central Bank of the UAE in the wake of the 2009 financial crisis and outstanding securities issued by the government, and other bilateral and syndicated facilities.

However, the launch of the Debt Management Office in 2022 is expected to help further improve the structure of Dubai’s government debt, perhaps by lengthening maturities, diversifying funding sources, and developing an efficient market for government securities.

Dubai’s economic prowess

Meanwhile, Dubai emerged from the COVID-19 pandemic as an investment hub and a magnet for tourists and the wealthy.

S&P Global projected that Dubai’s real gross domestic product (GDP) will expand by about 3 per cent in 2023, driven by the city’s relatively well-diversified and service-oriented economy.

The Middle East’s business and tourist hub received 14.4 million international overnight visitors in 2022 and the robust performance continued in 2023, with 4.7 million tourists recorded in Q1 2022 close to the 2019 pre-pandemic record of 4.8 million visitors, according to the Dubai Department of Economy and Tourism.

Dubai unveiled a new economic plan for the next decade, which envisages increasing foreign direct investment to Dhs650bn by 2033 from Dhs32bn currently. The growth strategy is expected to increase private sector investments in the city to Dhs1tn in the next decade.

S&P Global said the launch of the Dubai Economic Agenda D33 (D33) by the government is an important step toward achieving sustainable and diversified economic growth in the long term.

The authorities aim to achieve the objectives of D33 by, among other things, increasing trade with nontraditional markets, attracting the world’s best universities, supporting small and midsize enterprises, and launching a plan for green and sustainable manufacturing.

The D33 plan will run alongside the federal government’s “We The UAE 2031” plan and the “Dubai 2040 Urban Master Plan”.

Dubai will record modest fiscal surpluses averaging about 0.3 per cent of its GDP in 2023/2024, following an estimated surplus of 0.7 per cent of GDP in 2022 in line with the government’s 2023 budget.

The city’s revenue and expenditure are expected to stabilise at about 16 per cent of GDP each in the next two to three years. S&P Global said taxes – customs, value-added, corporate tax on profits earned by foreign banks operating in Dubai and excise – to make up as much as 40 per cent of government revenue, with around 60 per cent originating from nontax sources such as fees, fines and grants.