Dubai government is in huge financial trouble. It has given woes to investors around the world as markets fell as much as 8 percent on Friday.
Dubai’s enormous debt
Dubai, one of the seven sheikhdoms in the U.A.E., is among the world's richest countries, holding 8 percent of the world’s oil reserves. But according to reports by the Deutsche Bank, Dubai's total government debt stands at $4.3 billion, while the corporate debt stands at $4.9 billion.
Its biggest creditors are Abu Dhabi Commercial and Dubai-based Emirate NBD PJSC.
Currently, Dubai has $99.6 billion in assets and $60 billion in liabilities, which would have a huge bearing on the global financial system, particularly banks and emerging economies.
Dubai’s debt comes from Nakheel, the property firm behind the Palm Jumeirah, which is famous for its luxurious villas. The country has borrowed $80 billion in a four year construction boom that would transform the city into a financial center.
Nakheel has to make $3.52 billion Islamic bond repayment on Dec. 14.
Work on balance sheet required
Economists at Credit Suisse said, "The scale of debt that is subject to restructuring is large and adds to the risk that the finish to the year for the global credit markets will be sluggish.”
“The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can’t make all the excesses simply disappear,” said Arnab Das of Roubini Global Economics. “We still have to work out those balance sheet stresses. The recovery is proceeding, but significant challenges still lie ahead.”
Market situation across the world
Markets across the world, too, showed high variations due to Dubai’s debt woes.
Across the world, and in U.K. particularly, the markets fell steeply.
Royal Bank of Scotland, which has lent $1 billion to Dubai, fell by 7.8 percent, while Barclays which has lent $200 million fell by 8 percent. Lloyds fell by 5.8 percent and HSBC, the biggest bank of Europe fell by 4.8 percent.
The Shanghai index fell 3.6 percent, Hong Kong’s Hang Seng shed 1.8 percent, while Dow futures fell by 1.8 percent. FTSE 100 fell down by 3.2 percent, Germany’s DAX fell 3.3 percent, CAC-40 France went down by 3.4 percent.
The dollar slid to a 14-year low of 86.27 yen on Thursday, while the euro rose to a 15-month high of $1.5141.
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