Dubai Debt Crisis | Research Study

Running head: DUBAI DEBT CRISIS
DUBAI DEBT CRISIS
Name of Student
Name of University
Author’s Note

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Table of Contents
INTRODUCTION:..............................................................................................................4
STRUCTURE OF THE PROPOSAL:.................................................................................4
Topic for the Dissertation:...............................................................................................4
Background:.....................................................................................................................4
Literature Review:...........................................................................................................6
RESEARCH QUESTIONS:................................................................................................9
RESEARCH OBJECTIVES:...............................................................................................9
CONTRIBUTION:..............................................................................................................9
RESEARCH METHODOLOGY:.....................................................................................10
GANTT CHART:..............................................................................................................11
REFERENCES:.................................................................................................................12

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INTRODUCTION:
Dubai is considered as one of the most developed city in the world. In recent years it has
developed from being a barren land to a business hub of the world. It was nicknamed as “Skyline
on crack”, because the city has record setting skyscrapers. Unlike other cities of Middle Eastern
countries, Dubai represents a diverse culture. A survey states that Dubai’s population consists of
96% foreigners, which is much more diverse than New York City that has only 37% foreigners.
Dubai’s economic rise halted in recent years. The main reason behind the halt is due to
the downfall of the real estate sector of Dubai. Another main reason behind the downfall of the
economy of Dubai is due to the rise in the use of bio-fuel instead of petroleum and other types of
crude oil. The rise in the debt for Dubai remains a concern for United Arab Emirates (Al-Saleh
2018). The economic crunch in Dubai is affecting the global economy through various channels.
STRUCTURE OF THE PROPOSAL:
Topic for the Dissertation:
In order to analyse the reasons behind the economic halt of Dubai and the debt crisis of the
Dubai, this research paper is being created. The topic of this research paper is “Debt crisis in
Dubai”.
Background:
Dubai is considered as one of the seven emirates of the United Arab Emirates. Abu
Dhabi, Oman and Saudi Arabia, Qatar, Bahrain and Kuwait, the UAE constitute other Gulf
Cooperation Council countries are the neighbours of Dubai. These countries depend on Dubai
because Dubai is considered as the business hub of Middle East. Another notable characteristic
of these countries is that they exports oil and gas to the whole world. Thus, when the economic

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crisis occurred in the world then all these countries affected heavily and Dubai is one of the
countries who affected the most.
Before financial crisis Saudi Arabia, Bahrain, Kuwait and Qatar have their own monetary
union, but situation changes when global economic crisis occurred. Before the global economic
crisis these countries accumulated high stocks of foreign exchange reserves and other sovereign
wealth funds. These reserves assist their fiscal revenues to move up by considerable amount.
After the global economic crisis, the demand for oil and gas declined by considerable percentage,
which ultimately affected the economic condition of these countries.
Figure 1: Decreeing Demand of Oil
The decrease in demand for energy affects the prices of energy globally. The decrease in
the price of the energy worsened the situation for these countries. The current accounts and the
fiscal balances of these countries reduced in such a manner that the GDP of these countries fell
from double digit in 2008 to single digit or the figures that are negative in 2009. Dubai’s
economy was also affected due to this crisis. The downfall of the GDP of Dubai is visible in the

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development of Credit Default Swaps. The Credit Default Swaps spread of Dubai for 10 years
increased by 300 basis points during this period.
In order to mitigate this rising problem the federal government of UAE stepped in to help
Dubai government. The government of Abu Dhabi also came into aid by providing loan of US
$10 billion worth of bonds to the government of Dubai through central bank of the UAE. As per
the deal, government of Dubai will pay out US $4 billion on maturing debt and the remaining
amount will be used as interest payments during the next six months (Bratis, Laopodis and
Kouretas 2020).
During the end of the first decade of 21st century, the turbulence in the financial market
has calmed down by considerable means. The lasting effect of the global financial crisis mainly
impacted Dubai, as during this time their debt increased by considerable percentage. The
insurance premium of Dubai was much higher in comparison to other neighbouring countries. By
the second month of 2009, Dubai’s Credit Debt Swaps spread rises by 1000 basis points. The
sudden rise in Credit Debit Swaps spreads makes the economic condition of Dubai extremely
vulnerable. Dubai’s world debt also rises and reached to US $59 billion. There are non-
government guaranteed loan of US $22 billion that Dubai owes to the foreign investors. The only
solution that was present at that point of time was selling of the real estate assets holds by Dubai
World.
Literature Review:
During the global financial crisis, the equity markets of Middle East Oil Exporting
countries were in total chaos. The main reason behind it is the downfall of demand of crude oil
around the world. Ibrahim Onour (2017), created a paper that discussed about the effects of

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financial crisis on Middle East oil exporting countries. In order to analyse the impact of financial
crisis on the equity markets of Middle East oil exporting countries, the author used extreme
downside risks measures. As per the analysis, the author stated that the spill over effect of the
global crisis varies from country to country. The major affected area was the portfolio of Dubai
market. During the 2007-2008 financial crises, Dubai’s portfolio loss reached 42%. As per the
author, this is the main reason behind the rise of debt crisis of Dubai in 2009. During the end
months of 2009, Dubai World which is a conglomerate of government of Dubai asked its
creditors for a six months debt payment delay. This news affected the financial market of Dubai
by considerable amount.
Seran Cevick (2019), discussed about the lessons that world gets to know from Dubai
debt crisis. As per the author the global financial crisis of the United Arab Emirates, faced some
serious problems amid the financial crisis of 2007. The author tries to identify the fragilities that
were present in the federal government of the United Arab Emirates. This paper also discusses
about the evolution of the fiscal policies implemented by the United Arab Emirates amid the
financial crisis. The importance of the policy coordination in such situations is also being
discussed by the author. In order to measure the cyclicality of the fiscal balances at the
consolidated level in the United Arab Emirates, the author used non-hydrocarbon primary budget
balance. The author excludes interest spending and hydrocarbon revenues and investment
income from the sovereign wealth funds. The author deducted cyclical components from actual
balance for measuring the cyclically adjusted primary balance. The lack of fiscal policy became
one of the major reasons that affected the economic management of the country. After running
all kinds of tests the author came into conclusion that pro-cyclical fiscal policies before the
financial crisis assist the financial sector of United Arab Emirates to remain economically strong.

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Amid financial crisis it is advisable that the federal government must ensure coordination
between different layers of the governments. This will enable them to ensure long-term
sustainability and more equitable integration distribution of wealth.
Dubai debt fiasco is also stated by another author in its paper of economic crisis in Dubai.
In this paper author discusses about the differences that exists between Dubai and Dubai world
and also the nature of the debt crisis of Dubai. As per the author, in last four decades Dubai
developed themselves from oil based economy to more diversified economy. In order to
diversify the business federal government of Dubai increased their public spending on
investment which actually boosts the venture capital of the country. The federal government
conducted the investment through a company known as Dubai World. On behalf of the
government this company runs different investment portfolio in different fields. After this
initiative the economy of the country jumped and became the third largest economy of the world.
This growth of the country was compromised during the global economic crisis. The rise in
global crisis reduces the spending and the demand of different products and services also
reduced. This impacted the financial condition of Dubai and hence the country seen a rise in the
debt crisis in 2009 and it lasted for 2011. The oil rich country Abu Dhabi came into the aid of the
United Arab Emirates and lends US $ 10 billion. The country also has more than US $ 50 billion
debt and US $ 22 billion debt to the foreign investors. The over dependency on western imports
has resulted in the huge outflow of cash. In order to mitigate such problem the country needs to
solve the controversy regarding the Islamic bonds, so that the country can gained back its
investor’s trust, which in future will increase the cash inflow in the country (Miniaoui, Sayani
and Chaibi 2015). The country can also reduce consumption per head in the United Arab
Emirates.

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RESEARCH QUESTIONS:
This research paper deals with different questions. They are as follows:
1. What are the three major effects of Dubai Debt Crisis?
2. What are the main reasons behind the Dubai Debt Crisis?
3. What was the effect of Dubai Debt Crisis on the global economy?
4. How Dubai mitigate the debt crisis problem?
RESEARCH OBJECTIVES:
 To analyse the major effects that Dubai Debt Crisis has to offer.
 To analyse the main reasons behind the Dubai Debt Crisis.
 To analyse the effects of Dubai Debt Crisis on the global economy.
 To analyse the procedure that Dubai’s federal government adopted to mitigate the
debt crisis.
CONTRIBUTION:
Due to the rise in the chaos in the global economy because of pandemic of COVIT-19,
the countries around the world are more likely to enter into financial crisis. The rise in the
financial crisis may affect the debt structure of the country. In order to understand and identify
the possible solutions, the debt crisis of Dubai is being analysed. This can also become the future
reference for other researchers and authors.
Dubai’s debt crisis was one of the major issues that state the importance of the
diversification in business. Before the starting of 21st century, Dubai was an oil dependent
country, but during the starting of 21st century the country decides to open a subsidiary company
and diversified their business (Smith 2014). After financial crisis the country affected the most,

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but within few years they again gained their financial supremacy in the world. The ways and
reasons that Dubai used to overcome such problem is the most interesting and intriguing part.
The problem of debt crisis is normal in many organizations. The policies they use
sometimes dies not work, so organizations can implement the same kind of policies that Dubai
used for overcoming the debt crisis problem.
RESEARCH METHODOLOGY:
In order to conduct this research the best approach will be descriptive research approach.
As per this research approach, the researcher needs to identify the characteristics of problems
based on the description (Narayana and Abraham 2014). The researcher should gather
information that must be supported by facts. This approach is very useful when the research topic
is something which already occurred in the past and may have relations with the same kind of
present issue.
The main advantages of descriptive issues are as follows:
1. It is very effective when the research topic is non-quantified.
2. It provides window to observe any phenomenon in a completely natural and
unchanged natural environment
3. It provides great opportunity to the researcher to implement both qualitative and
quantitative methods of data collection
4. It is considered as less time consuming than any other methods.
Others methods like explanatory study or remedial study are not fit for the topic that has
relation with the present day solution. Both this methods tries are more of finding the questions
that mainly affecting the society or the research paper. Thus, descriptive study is much more
efficient for this kind of topic.

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In order to conduct this research, secondary research methods needs to be used. The
secondary research method will enable the researcher to find the solutions after analysisng the
previous data.
GANTT CHART:
TIME PERIOD: WEEK 1 WEEK 2 WEEK 3 WEEK 4
INTRODUCTION
LITERATURE
REVIEW
RESEARCH
METHODOLOGY
DATA ANALYSIS
CONCLUSION

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REFERENCES:
Al-Saleh, Y., 2018. Crystallising the Dubai model of cluster-based development. Place Branding
and Public Diplomacy, 14(4), pp.305-317.
Bratis, T., Laopodis, N.T. and Kouretas, G.P., 2020. Systemic risk and financial stability
dynamics during the Eurozone debt crisis. Journal of Financial Stability, 47, p.100723.
Cevik, S., 2019. Policy coordination in fiscal federalism: drawing lessons from the Dubai debt
crisis. International Journal of Emerging Markets.
Fouskas, V.K. and Dimoulas, C., 2016. Class and politics in the Greek debt crisis. In Europe in
Crisis (pp. 125-157). Palgrave Macmillan, London.
Krishnan, J.K. and Koster, H., 2016. An Innovative Matrix for Dispute Resolution: The Dubai
World Tribunal and the Global Insolvency Crisis. J. Disp. Resol., p.387.
Miniaoui, H., Sayani, H. and Chaibi, A., 2015. The impact of financial crisis on Islamic and
conventional indices of the GCC countries. Journal of Applied Business Research (JABR), 31(2),
pp.357-370.
Narayana, D. and Abraham, V., 2014. The Dubai Model and the Impact of the Financial Crisis
on South Asian Migrant Workers in the United Arab Emirates. India Migration Report 2012:
Global Financial Crisis, Migration and Remittances, p.94.
Onour, I., 2017. The global financial crisis and equity markets in middle east oil exporting
countries. Available at SSRN 3049065.

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Ozturkª, S. and Sozdemirᵇ, A., 2015. Effects of global financial crisis on Greece
economy. Procedia Economics and finance, 23, pp.568-575.
Smith, R.G., 2014. Dubai in extremis. Theory, Culture & Society, 31(7-8), pp.291-296.