Abu Dhabi will rescue Dubai defaults: Economist

According to a leading economist in the region, the concerns about Dubais potentially crippling default on enormous debts to global creditors have shattered investor confidence across the Gulf region, but, Abu Dhabi will surely come to the rescue.

The Abu Dhabi-based UAE Central Bank had subscribed for $10bn in Dubai sovereign bonds earlier this year, a portion, of which, was given to state-linked developers to pay their outstanding due to contractors.

According to John Sfakianakis, Chief Economist at Banque Saudi Fransi, Credit Agricole Group, Abu Dhabi will surely feel the impact of the Dubai storm in the short-term, but it will be a position to overcome any risk profile pressure.

Currently Abu Dhabi controls 90 percent of the oil reserves in the UAE, being the fourth largest in the world. Despite the global financial crunch, the Abu Dhabi Investment Fund is one of the world’s largest sovereign wealth funds. The Abu Dhabi’s Investment programme and low key leadership, offers enough assurance about the country’s direction to avoid fewer excesses, Sfkianakis said in a statement.

Credit quality deterioration is not an issue in Abu Dhabi, Saudi Arabia and Qatar, and in the short-term, investors can calm down and begin to differentiate between ‘good’ and ‘bad’ bets in the Gulf region, he said.

The Dubai debt debacle just follows that of Qatar, the world’s leading exporter of liquefied natural gas, which sold $7bn in bonds this month, mainly subscribed by investors in the US and UK. In future, global investors will have to differentiate between the debt-burdened Gulf economies with those whose leverage levels are incredibly low by global standards, Sfakianakis pointed out.

Being the world’s biggest oil exporter, Saudi Arabia, has the lowest levels of public debt in the G20, with domestic debt levels at 13.4 percent of GDP last year, in comparison with 81 percent in India and 50 percent in the US.

It also possesses huge foreign assets equivalent to 1.46 trillion Saudi riyals at the end of October, most of which, is invested in low-risk liquid investments. In the short-term, there will be flight to better quality, with foreign funds favoring Saudi Arabia, Abu Dhabi and Qatar, he concluded.

Posted on 1/12/2009

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