This report does not constitute a rating action.
In the past two to three years, Dubai's government has strengthened its balance sheet through significant debt reduction. However, liabilities from nonfinancial government-related entities (GREs) continue to weigh on public finances. In addition, although the impact of rising geopolitical tensions on Dubai's overall economy has so far been muted, the emirate's open economy remains structurally exposed to the cyclicality of global and regional demand.
In this article, S&P Global Ratings answers frequently asked questions from investors on how we view Dubai's economic fundamentals and prospects. We do not rate the Dubai government itself, so our views are based on publicly available information.
Frequently Asked Questions
What are Dubai's economic prospects?
We expect real GDP growth to remain near 3% on average over 2024-2027 following 3.3% growth in 2023. In our view, the services sector, including real estate, hospitality, and financial services will drive Dubai's growth, supported by United Arab Emirates (UAE)-wide social and economic reforms. Business-friendly regulations, a simplified visa regime, and the success of long-term residency visas will continue to fuel new businesses in Dubai.
We estimate the emirate's GDP per capita at about $38,000 in 2024. The resident population (which excludes those residing in other parts of the UAE and commuting to Dubai for work) reached 3.7 million at year-end 2023, according to the Dubai Statistics Center, and we project it will hit 4.0 million by 2026 on strong expatriate inflows.
How will geopolitical risks affect Dubai's economy?
Although Dubai's open economy remains susceptible to rising regional tensions, the impact on Dubai's overall economy, particularly the hospitality and real estate sectors (that constitute about 30% of the emirate's nominal GDP), has so far been muted. According to the most recent data, Dubai's seasonally adjusted S&P Global Purchasing Managers' Index, an indicator of growth in the non-oil private sector, has remained firmly above 50 until August-2024, indicating consistent economic growth despite external volatility.
Tourism has been resilient. In first-half 2024, Dubai received 9.3 million international visitors, 9% higher than the same period in 2023. The average hotel occupancy rate remains high, at about 80%, according to data published by Dubai Department of Economy and Tourism. In real estate, the market is reviving in property development for destinations such as Palm Jebel Ali, World Islands, and Dubai Islands, all of which have been stalled since the 2008 financial crisis. These could provide impetus to the Dubai hospitality and luxury living sector.
The wholesale/retail trade sector accounts for about 20% of Dubai's nominal GDP, and continues to grow. Despite some higher business costs, we anticipate that the impact of geopolitical tensions, including trade route disruptions in the Red Sea on Dubai's trade will be only marginal because Asia accounts for almost half of the emirate's trade, which we expect to be broadly unaffected by the tensions. According to the latest statistics available on Dubai Customs, Dubai's non-oil foreign trade reached to United Arab Emirates dirham (AED) 2 trillion in 2023.
Consumer price inflation rose above 3% for the first eight months of 2024, mainly due to domestic factors such as higher education fees and house rentals. We expect it to remain at that level for 2024.
In our base-case scenario, we continue to assume a protracted, direct Israel/U.S.-Iran conflict will not emerge (see "Widening Middle East Conflict Poses Risks For Regional Sovereign Ratings," published Oct. 9, 2024, on RatingsDirect). However, increasing geopolitical tensions in the Middle East region pose risks to our growth outlook for Dubai and the UAE. The key transmission channels for Dubai's economy would be through energy prices, tourism and capital flows, supply-chain disruptions, and inflationary pressure, which could worsen if the conflict reaches a tipping point (for more information, see "Risks Loom Amid A Fragile Stability," published Sept. 25, 2024). A potential exodus of the expatriate population in case of severe escalation of conflict remains a key risk for Dubai's economy.
What is S&P Global Ratings' view on Dubai's real estate sector?
Buoyant real estate and tourism sectors provide the government with fees, taxes, and charges that support its fiscal performance. The residential real estate sector remains robust, as demonstrated by a 45% increase in real estate transactions in second-quarter 2024 (according to the Dubai Land Department), along with a 37% rise in value. The influx of high net worth individuals to Dubai given the introduction of UAE's Golden visa is a key support factor for Dubai's residential property growth. At the same time, property demand from residents and international investors in the midrange and affordable categories remains a strong factor.
Still, we expect price stabilization from 2025-2026, when a large new supply of pre-sold properties will be delivered. This could create some risk of oversupply as the absorption depends on the emirate's population growth and demand trends. Dubai-based developers have demonstrated solid growth over the past three years with record revenue backlogs, a trend we think is equally favorable to Dubai government-related developers, underpinned by their solid reputation and numerous new projects launches over the past two-to-three years. Earlier in 2024, Nakheel and Meydan merged with Dubai Holding, which shortly after the merger reportedly refinanced its debt. We expect a closer alignment on their strategies, as their role is key in sustaining a dynamic real estate market in Dubai due to concentrated land ownership, which private developers rely on for their growth.
On the commercial side, we expect that economic opportunities, UAE's reputation as a safe haven, and its low tax regime will sustain Dubai's attractiveness for global investors. This is shown by the lowest office vacancy rates the emirate has seen in years, so far unaffected by spreading remote work practice and with rising rental rates.
What does S&P Global Ratings expect for the Dubai government's fiscal performance?
We forecast that the Dubai government will record fiscal surpluses averaging 1.6% of GDP over 2024-2027, supported by dividends from GREs, and strong corporate income tax and buoyant non-tax revenue collection. In our base-case scenario, we expect strong real estate and tourism performance to strengthen fee collection (from segments such as tourism, aviation, and land transfer and mortgage registration fees), while the government's ongoing divestments in its GREs will support dividend revenue. The UAE announced a corporate income tax of 9% on profits above AED 375,000 ($102,110) from June 2023. It is unclear how the authorities will distribute tax receipts between the federal government and emirates. We expect the bulk of revenue gains from corporate taxes to accrue from 2025 owing to the expected lag between tax filing by companies and the emirates receiving the money. We project that government revenue will stabilize at about 16% of GDP in the next two-to-three years while expenditure is forecast to average about 14.5% of GDP.
The government plans to retain some revenue each year to build the general reserve, which is estimated to be AED20.6 billion ($5.6 billion) at the end of 2026. Late in 2023, the government also established the Dubai Investment Fund. The fund's objectives include investing the government's surplus funds and financing its deficits. In our view, these policies will support Dubai's sustainable public finances.
What is S&P Global Ratings' outlook for Dubai government debt levels?
We expect Dubai's gross general government debt will decline to about 34% of GDP ($50 billion) by year-end 2024 from 70% of GDP in 2021. The government repaid about AED40 billion ($11 billion) of debt in 2022-2023, including an AED20 billion ($5.4 billion) loan from Abu Dhabi and the Central Bank of the UAE (partial repayment of $20 billion facility) and AED7.1 billion ($1.9 billion) in bonds. Furthermore, the loan from Dubai-based Emirates NBD bank declined by about half in the same period. As a result, we estimate that Dubai's gross government debt fell to about 38% of GDP at year-end 2023 from about 70% of GDP in 2021.
We assume the remaining $15 billion facility provided by Abu Dhabi and the Central Bank of the UAE to be rolled over and broadly the same amount of the Emirates NBD loan and bilateral and syndicated facilities in our forecast. We expect fiscal surpluses from 2024-2027, so we do not foresee additional debt issuances for the deficit financing over the next couple of years. We therefore project that government debt will decline as a share of GDP through 2027 (see chart). Still, our forecasts do not include debt financing for $35 billion Al Maktoum Airport expansion project or $8.2 billion Tasreef project (a project to build a rainwater drainage network which would be completed in phases by 2033) because it is unclear how it will be distributed between the government and state-owned enterprises and the timing of issuance. Previously, the government has used bilateral and syndicated facilities and raised $3 billion via its financing vehicle Airport Financing Co. FZCO (FINCO) to develop Dubai airports, which we have included in our government debt estimates.
Dubai is actively monetizing its assets, with its announcement that it would list 10 government-owned companies. Some were listed in 2022-2023, with estimated cash proceeds for the government of about AED33 billion ($9 billion). These included partial sales of utility company DEWA, toll operator Salik, district cooling service provider Empower, Parkin, Dubai Taxi Co., and business district operator TECOM. With four more companies still to be listed, the government could see another liquidity boost, which could support debt reduction or funding for the airport expansion.
Dubai's government liquid assets largely constitute Investment Corp. of Dubai's (ICD's) minority listed holdings, which we estimate at about 6% of GDP in 2024. As a result, we estimate net general government debt will stabilize at about 24% of GDP by 2027, with an average interest-to-revenue ratio of just above 5% over 2024-2027.
We estimate Dubai's total public sector debt remains sizable, at about 70% of GDP in 2024. This includes contingent liabilities of about 36% of GDP and general government debt (34%). Our estimate of contingent liabilities is based on the information provided in the IMF Articles and publicly available financial statements. The robust performance of the real estate and tourism sectors should help some GREs deleverage and reduce rollover risks. Nevertheless, relatively high GRE debt and its potential increase in achieving some of the initiatives outlined in the Dubai Economic Agenda D33 plan could weigh on the public sector's fiscal sustainability.
How does S&P Global Ratings expects the banking sector to perform in 2024-2025?
We expect solid performance of the banking sector in Dubai and the wider UAE should continue throughout 2024. After achieving record profitability in 2023, we further expect that the banking sector's profitability will fall slightly in entering the monetary policy easing cycle. The sector's ratio of nonperforming loans to gross loans has been declining since its peak in 2020 because of the improved economy and banks cleaning up their loan books by writing off fully provided exposures. We expect Fed policy rates to reach the terminal rate of 3.00%-3.25% by the end of 2025. Rate cuts would trim margins, but will support the sector's asset quality in our view.
What is S&P Global Ratings' view on the Dubai insurance sector's growth prospects?
Favorable economic conditions, relatively high oil prices, long-term investor visas, and other positive structural changes have spurred growth in the insurance sector in Dubai and the UAE in recent years. Overall, gross written premium growth for property/casualty (P/C) and health insurance (for both listed and unlisted P/C insurers) was about 18% in 2023, as reported by the Central Bank of the UAE. Ongoing economic growth in the UAE's oil and non-oil sectors will support premium growth and we expect that the repricing of motor and property policies, after the rainstorms in early 2024, will also propel top-line growth by 10%-15% in 2024. As a result, we expect gross written premiums for the UAE to exceed AED50 billion, of which about two-thirds are generated in Dubai, for the first time in 2024. This should support higher insurance penetration (measured as gross written premiums divided by gross domestic product) in Dubai, which stood at about 5.9% in 2023 (compared with 2.9% in the UAE and a global average of about 7%).
How did the floods of early 2024 affect insurers?
Although the risk of natural catastrophes in Dubai and the UAE has historically been relatively low, there is an element of material flood risk after rainstorms, as witnessed in early 2024. The UAE experienced a number of storms in early 2024, with the one on April 16 producing the most substantial rainfall since climate data recording began in 1949. Based on current estimates by industry participants, insured losses from the rainstorms could range from $1.5 billion-$2.5 billion, largely relating to property claims in Dubai.
Local insurers typically cede large, high-value property and infrastructure-related risks to international reinsures. In addition, most local insurers obtain excess of loss coverage for their motor insurance portfolios. This should significantly limit the net impact on local insurers, in our view. On the reinsurance side, rates have increased in recent years--particularly for nonproportional covers for energy, property, and liability risks. These increases are in line with global trends, given a reduction in capacity and some material reinsurance losses from global events in recent years. We think the available reinsurance capacity in the UAE remains adequate for all major risks, but that rates related to natural catastrophes will increase materially this year.
Ongoing premium growth, high competition leading to weaker profitability, and an increase in claims activity has strained capital buffers of some smaller and midsize insurers in the UAE in recent years. Although most insurers we rate in the UAE have robust capital and liquidity buffers, almost a quarter of the 26 listed insurers did not meet the required regulatory solvency capital requirements as of midyear 2024. This will likely accelerate capital raising and M&A in the sector, in our view.
Related Research
- Widening Middle East Conflict Poses Risks For Regional Sovereign Ratings, Oct. 9, 2024
- Risks Loom Amid A Fragile Stability, Sept. 25, 2024
- GCC Real Estate: How Credit Stories Have Evolved, March 11, 2024
- Dubai's Debt Reduction Strengthens Government Balance Sheet, May 22, 2023
- The Introduction Of Corporate Tax In The UAE Will Benefit Government Revenue Diversity Without Overburdening Companies, Banks, Or Insurers, Feb. 7, 2022
| Primary Credit Analyst: | Juili Pargaonkar, Dubai +971-4-372-7167; juili.pargaonkar@spglobal.com |
| Secondary Contact: | Zahabia S Gupta, Dubai (971) 4-372-7154; zahabia.gupta@spglobal.com |
| Additional Contacts: | Sapna Jagtiani, Dubai + 97143727122; sapna.jagtiani@spglobal.com |
| Puneet Tuli, Dubai + 97143727157; puneet.tuli@spglobal.com | |
| Emir Mujkic, Dubai + (971)43727179; emir.mujkic@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.