Sunday, February 14, 2010

Dubai's Debt Increasing

On Friday, Dubai announced that they are at their highest level of sovereign debt they have ever been in. Out of all the emirate's they are in the most debt. Dubai's five year credit-default-swap spread (measures credit risk) rose from 0.5% to 6.32% on Friday. According to the Wall Street Journal, these elevated levels makes Dubai one of the riskiest sovereigns in the world behind Argentina, Venezuela, Ukraine, and Pakistan. The increase in sovereign debt is due to massive debt buildup, over reliance on short term debt, and relying too heavily on help from more wealthier neighbors.

Dubai is struggling with a debt close to 80 billion dollars . In December, Abu Dhabi (Dubai's neighbor) gave Dubai 10 billion dollars to repay an Islamic bond 4.1 billion dollars.The remainder of the money will be used to meet their financing needs. Dubai has asked creditors to freeze their payments of 21.8 billion dollars of debt for six months, so that they could try and get caught up.

I feel that Dubai is not only is debt because of the World Financial Crisis that all countries today are facing, but it is also due to other factors as well. One factor may be because they are trying to build up their country to make it a tourism epicenter, which will help their economy when they completely run out of oil. Dubai is also facing empty buildings, falling property prices, and suspended construction projects.

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