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Dubai’s debt burden set to decline in 2023

S&P anticipates Dubai's real GDP to grow by roughly 3% this year, down from estimates of 5.0% in 2022 and 6.2% in 2021

S&P Global Ratings expects Dubai’s sovereign debt burden as a percentage of GDP to decline from a cyclical peak of 78% in 2020 to around 51% of GDP in 2023, on the back of robust economic growth.

In a report titled “Dubai’s debt reduction strengthens government,” the rating agency said the national debt could fall even faster if the reduction in nominal debt, which occurred in 2021 and to a more significant extent in 2022, continues over the coming years.

“Nevertheless, broader public sector debt will remain high at about 100% of GDP, when considering liabilities from nonfinancial government-related entities (GREs) of about 48% of GDP,” analyst Juili Pargaonkar and others wrote in the report.

S&P anticipates Dubai’s real GDP to grow by roughly 3% this year, down from estimates of 5.0% in 2022 and 6.2% in 2021.

“In our view, this year will be more reflective of regular economic activity in the emirate compared with the post-pandemic recovery years. We expect continued strong momentum in the hospitality, real estate, trade, and financial services sectors to support growth,” the analysts noted.

Regarding the prospects for companies in Dubai, S&P expects robust performance despite increasing global economic pressures such as high inflation and interest rates, even when the global debt capital markets remain challenging.

“We don’t think that the introduction of a corporate tax from June 2023 will significantly deter the establishment of new businesses. The announced 9.0 per cent tax rate will remain competitive for the region and globally, and many companies will benefit from recently announced exemptions. At the same time, free zones will continue to offer tax-free operations, while we do not expect personal income, capital gains, or dividend taxes to be introduced in the short term,” Juili Pargaonkar said.

Furthermore, structural and social programmes and reforms on a local and national level in the UAE should promote longer-term growth.

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