Dubai imploding, expats leaving: Multibillion-dollar Debt Crisis Looms For Dubai

[Denizen]

Dubai has a debt and property crisis. Dubai appears to have no reason for existence if taxes are imposed to rescue the too-large-to-fail entities and Dubai government from debt. Most entities and people operating out of Dubai are there for tax-free statuses, like many international sports stars who call it their country of residence.

Dubai and other Gulf states have recently been increasing taxes and charges on expatriates to the extent that it is losing its attractiveness which was only its tax-free economy. An exodus has already started which has caused a fall in property prices.

The low oil price regime has hurt many Gulf state economies including Saudi Arabia which previously were addicted to easy oil money.

It is likely that the chaotic state of many countries in the region due to popular uprisings against governments is also affecting the Gulf States economy as well.

It is also very probable that the US did not retaliate against Iran for the drone shoot-down and the Saudi Arabia attack because it would have caused Dubai, Abu Dhabi, Bahrain, and Kuwait to be at risk of retaliation from Iran which would have destroyed their economies possibly forever. If expatriates left the UAE they would most likely never return, particularly if there was a military conflict in the region. An exodus of expatriates would collapse the economies of the UAE and other Gulf states.

"Overview. In 2013, the UAE had the fifth-largest international migrant stock in the world with 7.8 million migrants (out of a total population of 9.2 million). Migrants, particularly migrant workers, make up a majority (approximately 80%) of the resident population of the UAE, and account for 90% of its workforce."

Climate change is a problem. Imagine a temperature of 54 deg C (129.2 deg F) with another 2 or more degrees from climate change. "Temperature records have been repeatedly broken in the MENA region in recent years. The highest recorded temperature in the region to date was 54°C at Mitribah, Kuwait in 2016. In the same week, Basra in Iraq recorded 53.9°C."

Are Dubai and the Gulf states in their death throes as economic change and climate change is making the region unlivable as their economies turn down?

Multibillion-dollar Debt Crisis Looms For Dubai

Multibillion-dollar Debt Crisis Looms For Dubai
Simon Constable

A decade ago the city-state suffered a near-calamity during the global financial crisis. At the time Dubai needed a massive bailout, which was provided by the National Bank of Abu Dhabi (located in UAE's capital Abu Dhabi) along with the UAE's central bank, according to Reuters.
This bailout was intended to calm investors who were uneasy about the fact that some of Dubai's government-related entities (GRE) had started defaulting on debts. Those investors had assumed that the GRE's were all guaranteed by Dubai. In other words, investors thought they'd get their money back from the government if the GREs failed.
(Keen market observers may recall that during the financial crisis the U.S government also bailed out two of its government-sponsored enterprises that helped support the mortgage market: Fannie Mae and Freddie Mac.)
Fast forward, and now the loans made to Dubai are coming due, so Abu Dhabi's government and the UAE's central bank have agreed to extend the loans on the $20 billion debts for another five years.
Unfortunately, the loan rejiggering doesn't solve Dubai's problem. There is still another lingering bill which totals approximately half the value Dubai's entire economy.
"Dubai's GRE debt amounts to $60bn, equal to 50% of Dubai's GDP and around half of this is due to mature in the next three years," the Capital Economics report states.
In other words, the GRE's have a bill of around $30 billion coming due in the next 36 months.
And it gets worse.
The problem is that while the loan rollover will provide a safety net if the GREs run into financial trouble, it does absolutely nothing to fix the underlying problem of a weakening economy in Dubai brought on by softer oil prices, and a likely collapse in the real estate market due to overbuilding. All of that puts a damper on businesses in Dubai including the GREs, which may find it hard to pay the interest on the outstanding loans or refinance those debts.
An Oil-related Slide
Despite Dubai's diversification away from oil over the past few decades, the entire region is still dependent on energy revenues. The fall in prices for crude oil over the past half decade have squeezed Gulf governments and private enterprises alike. Brent crude oil, the European benchmark, fetched more than $100 a barrel in mid-2014 versus around $65 recently, according to data from media company Bloomberg.
The slowdown in global trade hasn't helped Dubai either. In a similar way to Singapore and Hong Kong in the far east, Dubai has set itself up as a trading hub in the Gulf, benefiting from the flow in international trade. However, the recent slump in trade, combined with growing protectionism means that the city's business will suffer.
In turn, the softening business environment will hurt the ability of the GREs to service their debts. That could possibly lead to the government being on the hook for the cash once again if those GREs can't pay or can't refinance their debts.
Already the local stock market is showing signs of investor fears about the future. The Dubai Financial Market General Index, which tracks a few dozen locally listed stocks, has lost almost half its value over the past half-decade. The index was recently trading at 2,683, down 49% from 5,302 in May 2014, according to Bloomberg.
"The backdrop of weak growth across the Gulf and the risk of overcapacity after the 2020 World Expo means that the GRE's revenues could be weaker-than-expected, harming their ability to service these debts," the Capital Economics report continues.
In other words, unless something changes to help Dubai's economy, the debt problems could sink the city.

 

[Denizen]

Dubai is 300 kilometers from Iran. This could be the real reason those rich people are running away.

The fact that Dubai has a population of 9.2 million and only 1.4 million of those are citizens also demonstrates minority rule in the country and no democracy.

Expats are often arrested for trivial reasons, especially Western women who have filed rape complaints.

The potential for armed conflict recently was probably a wake-up call.

 

[Andylusion]

Dubai has a debt and property crisis. Dubai appears to have no reason for existence if taxes are imposed to rescue the too-large-to-fail entities and Dubai government from debt. Most entities and people operating out of Dubai are there for tax-free statuses, like many international sports stars who call it their country of residence.

Dubai and other Gulf states have recently been increasing taxes and charges on expatriates to the extent that it is losing its attractiveness which was only its tax-free economy. An exodus has already started which has caused a fall in property prices.

The low oil price regime has hurt many Gulf state economies including Saudi Arabia which previously were addicted to easy oil money.

It is likely that the chaotic state of many countries in the region due to popular uprisings against governments is also affecting the Gulf States economy as well.

It is also very probable that the US did not retaliate against Iran for the drone shoot-down and the Saudi Arabia attack because it would have caused Dubai, Abu Dhabi, Bahrain, and Kuwait to be at risk of retaliation from Iran which would have destroyed their economies possibly forever. If expatriates left the UAE they would most likely never return, particularly if there was a military conflict in the region. An exodus of expatriates would collapse the economies of the UAE and other Gulf states.

"Overview. In 2013, the UAE had the fifth-largest international migrant stock in the world with 7.8 million migrants (out of a total population of 9.2 million). Migrants, particularly migrant workers, make up a majority (approximately 80%) of the resident population of the UAE, and account for 90% of its workforce."

Climate change is a problem. Imagine a temperature of 54 deg C (129.2 deg F) with another 2 or more degrees from climate change. "Temperature records have been repeatedly broken in the MENA region in recent years. The highest recorded temperature in the region to date was 54°C at Mitribah, Kuwait in 2016. In the same week, Basra in Iraq recorded 53.9°C."

Are Dubai and the Gulf states in their death throes as economic change and climate change is making the region unlivable as their economies turn down?

Multibillion-dollar Debt Crisis Looms For Dubai

Multibillion-dollar Debt Crisis Looms For Dubai
Simon Constable

A decade ago the city-state suffered a near-calamity during the global financial crisis. At the time Dubai needed a massive bailout, which was provided by the National Bank of Abu Dhabi (located in UAE's capital Abu Dhabi) along with the UAE's central bank, according to Reuters.
This bailout was intended to calm investors who were uneasy about the fact that some of Dubai's government-related entities (GRE) had started defaulting on debts. Those investors had assumed that the GRE's were all guaranteed by Dubai. In other words, investors thought they'd get their money back from the government if the GREs failed.
(Keen market observers may recall that during the financial crisis the U.S government also bailed out two of its government-sponsored enterprises that helped support the mortgage market: Fannie Mae and Freddie Mac.)
Fast forward, and now the loans made to Dubai are coming due, so Abu Dhabi's government and the UAE's central bank have agreed to extend the loans on the $20 billion debts for another five years.
Unfortunately, the loan rejiggering doesn't solve Dubai's problem. There is still another lingering bill which totals approximately half the value Dubai's entire economy.
"Dubai's GRE debt amounts to $60bn, equal to 50% of Dubai's GDP and around half of this is due to mature in the next three years," the Capital Economics report states.
In other words, the GRE's have a bill of around $30 billion coming due in the next 36 months.
And it gets worse.
The problem is that while the loan rollover will provide a safety net if the GREs run into financial trouble, it does absolutely nothing to fix the underlying problem of a weakening economy in Dubai brought on by softer oil prices, and a likely collapse in the real estate market due to overbuilding. All of that puts a damper on businesses in Dubai including the GREs, which may find it hard to pay the interest on the outstanding loans or refinance those debts.
An Oil-related Slide
Despite Dubai's diversification away from oil over the past few decades, the entire region is still dependent on energy revenues. The fall in prices for crude oil over the past half decade have squeezed Gulf governments and private enterprises alike. Brent crude oil, the European benchmark, fetched more than $100 a barrel in mid-2014 versus around $65 recently, according to data from media company Bloomberg.
The slowdown in global trade hasn't helped Dubai either. In a similar way to Singapore and Hong Kong in the far east, Dubai has set itself up as a trading hub in the Gulf, benefiting from the flow in international trade. However, the recent slump in trade, combined with growing protectionism means that the city's business will suffer.
In turn, the softening business environment will hurt the ability of the GREs to service their debts. That could possibly lead to the government being on the hook for the cash once again if those GREs can't pay or can't refinance their debts.
Already the local stock market is showing signs of investor fears about the future. The Dubai Financial Market General Index, which tracks a few dozen locally listed stocks, has lost almost half its value over the past half-decade. The index was recently trading at 2,683, down 49% from 5,302 in May 2014, according to Bloomberg.
"The backdrop of weak growth across the Gulf and the risk of overcapacity after the 2020 World Expo means that the GRE's revenues could be weaker-than-expected, harming their ability to service these debts," the Capital Economics report continues.
In other words, unless something changes to help Dubai's economy, the debt problems could sink the city.

As I've said a million times in other threads, too-big-to-fail is a myth. It's a myth created by rich people, to get poor people, to support elite people, to bailout rich people.

There is no such thing as too-big-to-fail. There is no company, or group of companies, that if they failed, the entire world would end. That is ridiculous.

What that mythology really points to, is just how ignorant people are of how bankruptcy works. Cisco has been bankrupt twice, and almost bankrupt a 3rd time. When a massive company goes bankrupt, they go through a restructuring, where they sell off unprofitable divisions, or close them, and keep the profitable ones, and work out a payment plan.

More often than not, they don't just shut the company down and disappear. And sometimes even when they do shut the company down, someone buys it and restarts it. Hostess did that. They shut down completely, and were purchased by investors, and restarted.

So there is no "too-big-to-fail". We should never have bailed out anything, ever.

The rest of the stuff in that article, is not all that accurate. There is no real property crisis in Dubia, as near as I can tell. From what I see, Dubia had for several years, a drastically inflated housing price bubble.

They finally broke the bubble in mid-2015. We would expect that housing prices would fall.

Additionally there is another factor. Almost half the population of the UAE is migrant workers. This means that a massive chunk of the housing market is driven by external forces of transient labor. This means that when the economy is good in the UAE, and bad in nearby countries, housing prices will shoot up, and when the reverse, they will crash.

This is unavoidable instability in the price system, unless they control migrant labor by either limiting it, or requiring migrants move to become citizens. Neither is likely to happen.

But that means you can't look at price swings, and claim this shows a crisis. It does not.

And by the way, as a side-note, I have never understood why a reasonable decline in housing prices is bad. Why is more people being able to afford living space, bad? If the housing prices in California fell by 50%... this would be a huge win for everyone in California.

As for the debt in Dubai... this appears to look more like a product of bad government policy, than any sort of economic problem.

Dubai's government related entities.... read GSEs in the US like Fannie and Freddie, were run (as is typical of anything run by the government) poorly, and had to default. The government wasn't willing to bailout their GREs for making bad choices.

The difference between the GREs in Dubai, and the GSEs in the US, is that Dubai allowed their GREs to grow so large they couldn't bail them out, even if they wanted to.

A lesson we should have learned when Fannie Mae and Freddie Mac became the largest bailouts of the 2009 crash.
And we should have learned that government is bad at running almost anything, and we likely shouldn't have GSEs at all.

Instead, we bailed out our GSEs, which just gives them courage to be even more irresponsible in the future. I wager at some point we'll be faced with a crisis of government run entities just like Dubai.

 

[CrusaderFrank]

Dubai has a debt and property crisis. Dubai appears to have no reason for existence if taxes are imposed to rescue the too-large-to-fail entities and Dubai government from debt. Most entities and people operating out of Dubai are there for tax-free statuses, like many international sports stars who call it their country of residence.

Dubai and other Gulf states have recently been increasing taxes and charges on expatriates to the extent that it is losing its attractiveness which was only its tax-free economy. An exodus has already started which has caused a fall in property prices.

The low oil price regime has hurt many Gulf state economies including Saudi Arabia which previously were addicted to easy oil money.

It is likely that the chaotic state of many countries in the region due to popular uprisings against governments is also affecting the Gulf States economy as well.

It is also very probable that the US did not retaliate against Iran for the drone shoot-down and the Saudi Arabia attack because it would have caused Dubai, Abu Dhabi, Bahrain, and Kuwait to be at risk of retaliation from Iran which would have destroyed their economies possibly forever. If expatriates left the UAE they would most likely never return, particularly if there was a military conflict in the region. An exodus of expatriates would collapse the economies of the UAE and other Gulf states.

"Overview. In 2013, the UAE had the fifth-largest international migrant stock in the world with 7.8 million migrants (out of a total population of 9.2 million). Migrants, particularly migrant workers, make up a majority (approximately 80%) of the resident population of the UAE, and account for 90% of its workforce."

Climate change is a problem. Imagine a temperature of 54 deg C (129.2 deg F) with another 2 or more degrees from climate change. "Temperature records have been repeatedly broken in the MENA region in recent years. The highest recorded temperature in the region to date was 54°C at Mitribah, Kuwait in 2016. In the same week, Basra in Iraq recorded 53.9°C."

Are Dubai and the Gulf states in their death throes as economic change and climate change is making the region unlivable as their economies turn down?

Multibillion-dollar Debt Crisis Looms For Dubai

Multibillion-dollar Debt Crisis Looms For Dubai
Simon Constable

A decade ago the city-state suffered a near-calamity during the global financial crisis. At the time Dubai needed a massive bailout, which was provided by the National Bank of Abu Dhabi (located in UAE's capital Abu Dhabi) along with the UAE's central bank, according to Reuters.
This bailout was intended to calm investors who were uneasy about the fact that some of Dubai's government-related entities (GRE) had started defaulting on debts. Those investors had assumed that the GRE's were all guaranteed by Dubai. In other words, investors thought they'd get their money back from the government if the GREs failed.
(Keen market observers may recall that during the financial crisis the U.S government also bailed out two of its government-sponsored enterprises that helped support the mortgage market: Fannie Mae and Freddie Mac.)
Fast forward, and now the loans made to Dubai are coming due, so Abu Dhabi's government and the UAE's central bank have agreed to extend the loans on the $20 billion debts for another five years.
Unfortunately, the loan rejiggering doesn't solve Dubai's problem. There is still another lingering bill which totals approximately half the value Dubai's entire economy.
"Dubai's GRE debt amounts to $60bn, equal to 50% of Dubai's GDP and around half of this is due to mature in the next three years," the Capital Economics report states.
In other words, the GRE's have a bill of around $30 billion coming due in the next 36 months.
And it gets worse.
The problem is that while the loan rollover will provide a safety net if the GREs run into financial trouble, it does absolutely nothing to fix the underlying problem of a weakening economy in Dubai brought on by softer oil prices, and a likely collapse in the real estate market due to overbuilding. All of that puts a damper on businesses in Dubai including the GREs, which may find it hard to pay the interest on the outstanding loans or refinance those debts.
An Oil-related Slide
Despite Dubai's diversification away from oil over the past few decades, the entire region is still dependent on energy revenues. The fall in prices for crude oil over the past half decade have squeezed Gulf governments and private enterprises alike. Brent crude oil, the European benchmark, fetched more than $100 a barrel in mid-2014 versus around $65 recently, according to data from media company Bloomberg.
The slowdown in global trade hasn't helped Dubai either. In a similar way to Singapore and Hong Kong in the far east, Dubai has set itself up as a trading hub in the Gulf, benefiting from the flow in international trade. However, the recent slump in trade, combined with growing protectionism means that the city's business will suffer.
In turn, the softening business environment will hurt the ability of the GREs to service their debts. That could possibly lead to the government being on the hook for the cash once again if those GREs can't pay or can't refinance their debts.
Already the local stock market is showing signs of investor fears about the future. The Dubai Financial Market General Index, which tracks a few dozen locally listed stocks, has lost almost half its value over the past half-decade. The index was recently trading at 2,683, down 49% from 5,302 in May 2014, according to Bloomberg.
"The backdrop of weak growth across the Gulf and the risk of overcapacity after the 2020 World Expo means that the GRE's revenues could be weaker-than-expected, harming their ability to service these debts," the Capital Economics report continues.
In other words, unless something changes to help Dubai's economy, the debt problems could sink the city.

LOL @ "Climate change is a problem."