Dubai World impact on GCC to take ‘some time’: IMF

The full impact of Dubai’s $24.8 billion debt postponement on the region’s economies may not be felt for “some time,” the International Monetary Fund said.

“In particular, a possible re-pricing of quasi sovereign debt could have a lasting effect on financial systems, corporate sectors, and, more generally, economic activity in the area,” the IMF said on Wednesday in its World Economic Outlook.

State-owned Dubai World’s announcement in November that it planned to restructure debts, following defaults by two Saudi Arabian groups, has made banks more reluctant to lend and disrupted bond sales across the Middle East. That’s slowing recovery from last year’s recession, caused by slumps in property and oil prices and global trade.

The UAE will grow 1.3 per cent, held back by property- related industries that are still shrinking, after a 0.7 per cent contraction last year, the IMF said. Dubai’s economy shrank 2.5 per cent in 2009, preliminary government estimates show. Growth in Saudi Arabia, the largest Arab economy and biggest oil exporter, will accelerate to 3.7 per cent this year from 0.1 per cent, the IMF said.

The money that Gulf governments have spent to prop up banks isn’t translating into credit growth because Gulf lenders are still “cautious” after defaults and debt postponements rocked the region, the IMF said.

Dubai World on March 25 sought to extend debts for as much as eight years. It offered to pay 1 per cent interest, compared with a market rate of about 5 per cent, according to bankers familiar with the talks. Saudi Arabia’s Saad Group and Ahmad Hamad Algosaibi & Brothers Co defaulted on debts held by their Bahrain bank units last year.

Government investment programs have helped cushion the effects of the global crisis in many Middle Eastern countries, and “should remain in place to help cement the recovery,” though high debt levels make it hard for the region’s oil importers to keep spending, the IMF said.

Higher energy prices are driving a rebound in oil and gas-exporting countries, the IMF said, forecasting an 18.5 per cent jump in output this year in Qatar, the world’s largest exporter of liquefied natural gas.

Among oil-importers, Egypt and Syria are forecast to grow 5 per cent, Jordan 4.1 per cent and Morocco 3.2 per cent this year, according to the IMF. Such countries are feeling the effects of a “sluggish” recovery in Europe, curbing revenue from exports, tourism and remittances, it said.

Overall, the economic output of the Middle East and North Africa region will grow 4.5 per cent this year and 4.8 per cent in 2011, from 2.4 perc ent in 2009, the IMF said.