(This blog was written on 9th December 2009, after which indeed Abu Dhabi issued assistance for Dubai).

The Golden Era of Dubai seems to have hit the docks, atleast temporarily. Dubai World the crown jewel of the construction industry, the main attraction of Investing in Dubai, has asked for more time to repay its scheduled debt repayments.  This in kind is a partial default. Quite shocking as not only the Dubai Rulers, the Expats but even the investment world somehow believed that Dubai was immune from such effects of the Global recession. As we found out it was not.  Furthermore the Central as well as the Dubai governments have refused to backup Dubai World’s obligations. This has increased the country’s political and default risks. The fears in international investing community have increased and the image of Dubai damaged.

Only in June this year IMF (International Monetary Fund) and other reputable international organisations were predicting growth for Dubai as well as increases in remittances from this business hub in the Middle East. Things however changed when foreign funds dried up for the ambitious construction projects resulting in redundancies which in turn reduced the demand for accommodation, therefore affecting the real estate market too.

From Pakistan’s perspective Dubai’s woes can impact its’ economy in two major ways. Through reduced remittances from Ex-Pat workers and reduced exports to Dubai. There is also the indirect impact of Pakistani businessmen and Investors losing out in the current crisis. Another major problem would be providing jobs for the unemployed workforce returning to the country to ensure their families can be sustained and purchasing power maintained.

According to trade figures from the Pakistani Commercial Office in Dubai Exports to UAE increased to $1.8 billion in 2008. The UAE was the largest importer from Pakistan in the Arab region. During March 2009 alone the volume of remittances from the UAE to Pakistan topped $174 million. In the current climate when State Bank has also announced that it would be shifting the burden of arranging the foreign currency for crude oil imports on the private sector, the reduced remittances and exports would further serve to weaken an already unstable Rupee. This can have adverse consequences for one of the biggest problems facing the country today, further increases in inflation. Any rise in inflation would result in increased raw material and labour costs as well as other overheads which will adversely affect the exports.

The seriousness of the issue would depend on the extent of the damage and the degree of decrease in remittances and exports. As the UAE government is not willing to release any official figures, the exact extent of the damage cannot be confirmed.

On the brighter side the central emirate of Abu Dhabi is well placed to step in to stop any further disaster should matters further worsen. Also the corrective steps taken by the emirate of Dubai as well as the central UAE government and the will to put a stop to the crisis could well reduce the impact.

(The author is a world renowned Qualified Chartered Accountant and a Highly Qualified Financial Analyst who has worked  with leading national and multinational companies based in UK and different Public Departments the world over, besides helping reshape businesses  through consultancy. /

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