Dubai economy to contract by 11% this year: $&P
DUBAI, October 3, 2020
Dubai's economy will contract by around 11% in 2020, owing mainly to the Covid-19 impact on its travel and tourism industry, the sector most affected by the pandemic, according to an S&P Global Ratings report.
As per S&P estimate, Dubai's gross general government debt will reach about 77% of GDP in 2020.
Low oil prices have had broad effects on GCC economies, of which Dubai is one, but hydrocarbons directly contribute only about 1% to Dubai's total GDP.
The indirect effect of weaker demand from Dubai's neighbours will dampen Dubai's trade, tourism, and real estate markets, it stated.
Although Dubai's economy is somewhat more diversified than that of most its regional peers, the report anticipates an economic contraction of around 11% of GDP in 2020, recovering to 2019
levels by 2023.
STR Global, a data intelligence and benchmarking firm, reported Dubai's hotel occupancy rate at
26% in June as inbound tourism sharply declined following global lockdowns and much-reduced
air travel designed to curb the spread of Covid-19.
The fact that fewer residents left Dubai during the hot summer months and instead spent more domestically to some extent has supported the economy. Local support for the economy cannot, however, offset the almost complete shutdown of inbound international tourism for most of 2020, and the likely slow recovery of the long-haul aviation that Dubai specializes in.
The Dubai government now expects to post a deficit of AED12
billion (3.2% of GDP) this year, largely owing to the reduction in economic activity and the
consequent expected 28% decline in revenue, stated S&P Global Ratings.
It also expects significant off-balance-sheet expenditure, resulting in the government's net debt position worsening by more than what the headline deficit would imply, as has occurred in previous years.
S&P Global Ratings pointed out that the below-the-line expenditure which causes the variance between headline deficits and the change in net debt mostly involves support for Dubai's government related entities (GREs), an example of which is the recently disclosed AED7.3 billion (1.9% of GDP) already provided to national carrier Emirates in 2020.
Support for GREs will likely be appreciably larger in 2020 than in the past, due to the broad cross-sector shock to Dubai's economy, it added.
The ratings major said that in total, it expected new government bond issuance and loans to total around 7% of GDP in 2020. The government has issued AED8.4 billion (2.2% of GDP) of public debt so far in 2020, marking the biggest year for Dubai's debt issuance since 2009.
"This, in combination with recently disclosed new bilateral and syndicated facilities through June 2020 (facilities that have increased by AED15 billion (4% of GDP) since Dubai's previous end-2018 disclosures) supports our estimation that 2020 will be another year where debt accumulation far exceeds the headline deficit," it stated in the review. -TradeArabia News Service
