Is Dubai in debt

Dubai cannot repay debts

With a solid base of oil billions and apparently always new ideas for architectural superlatives, the Gulf emirate of Dubai has hardly made a name for itself as a crisis candidate.

But since the government had to ask the creditors of two state-owned corporations to defer payments, there has been greater unrest in the financial world. Investors fear the emirate's insolvency. Dubai itself is threatened by its growing debts to ruin its ambitious plans for the future.

State holdings in financial difficulties
According to reports from the Emirates News Agency (WAM), Dubai asked the lenders of the state investment holding company Dubai World and its subsidiary Nakheel on Wednesday to waive repayments by May 30, 2010. At the same time, the government under Sheikh Mohammed bin Raschid Al Maktum announced a restructuring of the two state-owned companies.

Billionaire prestige projects
These had made a name for themselves around the world primarily through prestige projects such as Dubai World, one of the billion-dollar artificial island worlds off the coast. Dubai, which is part of the United Arab Emirates (UAE), is now sitting on a mountain of debt of around 80 billion euros.

There is no money for repayments
At the end of November, the heavily indebted state-owned company Dubai World asked for an extension of the deadline for repaying a total of 18.1 billion euros in debt, thus triggering fears of a second wave of the financial crisis in the global markets.

Image gets cracks
At the same time as the request for a debt moratorium, Dubai raised five billion dollars (3.3 billion euros) in the neighboring emirate of Abu Dhabi as part of a financing program that began at the beginning of the year. Originally, the emirate wanted to borrow twice as much money.

With the possible scenario of a payment default, "the image of the extremely financially strong Gulf region cracks", commented the "Financial Times Deutschland" ("FTD"). After all, investors from the Gulf States stepped in as "saving angels" for Western companies several times during the crisis.

Emirate under renovation
Dubai has been working on restructuring its economic structure for years. The reason is the foreseeable depletion of crude oil stocks. Only a single-digit percentage of the gross domestic product (GDP) comes from the oil industry.

Interested parties stay away
Instead, the emirate is trying to establish itself as an international center for finance, trade and tourism. Part of this strategy are the numerous prestige projects such as the island worlds "The World", "The Palm Jumeirah" and "Dubai Water Front", which are artificially piled up from sand and rocks in the sea.

Due to the financial crisis, however, the interest in luxury on the part of western investors suddenly declined. The last major project, the Nakheel Tower with a height of over 1,000 meters and projected costs of over 25 billion euros, was temporarily put on hold.