An International Monetary Fund team will visit Dubai in coming weeks to look closer at the economic impact of the Dubai World debt crisis and actions needed to resolve it, a senior IMF official said on Monday.
In an interview with reporters, IMF Director for the Middle East and Central Asia Masood Ahmed said the visit was an opportunity for the IMF to update and conclude its 2009 assessment of the UAE.
Dubai has been shaken by the debt troubles at government-owned Dubai World, which is currently meeting creditors to delay payment on $26bn in debt, damaging the reputation of the Gulf Arab business hub.
Ahmed said the impact of the crisis appeared contained after a week of concerns among international investors that the crisis could spread. While those worries have subsided, the crisis is likely to have longer lasting effects for the UAE and some of its neighbours.
Ahmed said from now on lenders would likely demand more financial transparency from government-backed companies trying borrow money on their own standing and would also call for clarity on the nature of guarantees on quasi-sovereign debt.
“Lenders and investors will want to look at their balance sheets, their profit/loss statements, their liabilities and assets, in the way they would for any other borrower,” Ahmed said on the sidelines of the Arab Global Forum, a meeting of the private-sector in Washington.
“In today's market place, companies that provide financial information should be able to attract capital on more attractive terms,” he added.
Ahmed also said there will probably be a period of uncertainty around regulations and legal frameworks of sukuk, or Islamic bonds.
“That will need to be worked through,” he added.
A key tests for Dubai World's restructuring process will the issuance of a sukuk by Nakheel, the real estate arm of Dubai World, which is due to be redeemed at $4.05bn on December 14.
Ahmed said it was important for Dubai World to provide creditors and investors with as much information as it could to ensure an orderly restructuring of the debt.
“There is no reason to delay action on trying to provide more information and clarity on the status of companies outside Dubai World,” Ahmed said.
“Over time those providing that information will be able to respond to the markets requirements and will be able to attract capital at more attractive prices,” he added.
Last week, Ahmed said the IMF was set to cut its growth for the UAE's non-oil sector to significantly less than the three percent the Fund had forecast for next year.
“The UAE is much more than just Dubai and Dubai is much more than Dubai World, but we do think the impact of Dubai World … will hold back recovery,” he added.
Ahmed said the UAE did not need the IMF's financial assistance to help it deal with Dubai World's problems.
“The UAE has a lot of resources, and the sovereign wealth fund is one of those sources,” he said, “Exactly how they use their different financial assets to deal with the current problem is something I'm sure they're working out.”
Asked whether the IMF should have spotted trouble brewing at Dubai World, Ahmed said the Fund had long identified the asset price bubble in the UAE and warned of its impact on corporations involved in the development of real estate and associated affiliates, as well as on the banking sector.
“As to whether the IMF can and should be able to get inside a particular company to be able to look at its finances? That is removed from the role of the IMF, and it is harder in the case of companies such as this,” he said.
