In this month's issue of the Export Finance and Insurance Corporation (EFIC) newsletter, World Risk Developments, their chief economist, Roger Donnelly, records impressions from a recent visit to two country risk hotspots – Greece and Dubai.
According to Donnelly, the revelation that ‘Dubai Inc’ and the Greek government alike are having debt difficulties is a reminder that over-borrowing was widespread in the years preceding the credit crunch – not just confined to households and banks in America, Britain, Spain, Latvia and Iceland. Similarly, the process of deleveraging now underway is hitting all those over-geared entities together.
How well are Greece and Dubai going about restructuring their debts, restoring their reputation, and getting back to sustainable growth? Greece is lagging Dubai, says Donnelly.
‘It has a much higher public debt load and poorer growth outlook because of uncompetitive industries and an inability to devalue to restore competitiveness because of membership of the eurozone. The upshot is the amount of fiscal austerity needed to restore solvency and market confidence could be beyond the ability of Athens to deliver ’, says Donnelly from Export Finance and Insurance Corporation.
‘With the help of lots of belt-tightening, EU rescue funds and perhaps a multi-year IMF credit, together with a strong global recovery and further depreciation of the euro, the government might just be able to outgrow its debt without defaulting. But this is quite a list of requirements, and it is equally thinkable that the government may need to go to its creditors to restructure its debt.’
‘Either way, the economy looks as if it will remain stuck in the doldrums for several years.’
In contrast, the debt load in Dubai isn't so heavy, it is confined to the property and construction industries, and importantly, the neighbouring oil-rich Abu Dhabi has come to the financial rescue. The result, says Donnelly, is much better prospects for economic recovery and for creditors (bankers, bondholders and suppliers alike) getting their money back.
He cautions that the debt workout process still has a way to go and there could be further announcements of troubled debts among government-related entities. ‘But equally. there is a need to keep perspective. While many of the property developments were certainly ill-judged and impetuous, this can't be said for activity in other industries. Most of them remain profitable, including the Jebel Ali Port and Free Zone, the other free zones, Emirates Airlines, the Borse Dubai, the Dubai International Financial Centre and the aluminium smelters.’
‘Expect a focus on consolidation rather than expansion in the future – but still brisk, if more subdued, growth’, he concludes.
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