JEDDAH – The Gulf is for the most part insulated from the Greek crisis, but the UAE does exhibit some vulnerability due to the debt troubles facing the emirate of Dubai, contending with debt exceeding $100 billion, including $25 billion under negotiation for restructuring, Credit Agricole Corporate & Investment Bank said on Friday.
In its “Emerging Market Focus” report, it noted that an escalation of troubles in Europe will only raise the burden on Dubai, which – like Greece – relies heavily on the support of its wealthier neighbor, Abu Dhabi, to bail it out of tight spots in exchange for adopting greater austerity measures.
In the short term, Gulf Arab states are more insulated from the impact of the European sovereign crisis than other MENA countries, such as those in North Africa. Should European bank deleveraging pick up pace, the Gulf will be compelled to continue relying on domestic funding sources. European banks could perpetuate their risk aversion towards the region, except where the borrower affords explicit sovereign or quasi-sovereign status. The Dubai debacle has compounded risk aversion in the UAE.
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