Friday, January 16, 2009
South Asians Flee Dubai as Economy Slows
Dubai police have found at least 3,000 automobiles -- sedans, SUVs, regulars -- abandoned outside Dubai International Airport in the last four months. Police say most of the vehicles had keys in the ignition, a clear sign they were left behind by owners in a hurry to take flight. It is believed that the owners of these vehicles are mostly foreign workers from South Asia who have lost their jobs after Dubai's real estate crash, according to a DNA report.
Dubai and other GCC countries are planning deficit-spending to stimulate their economies in 2009. Dubai will raise its budget by 11% for fiscal 2009. The city-state's finance department estimates the new spending will result in a modest fiscal deficit, Dubai's first ever. Other Gulf governments, including Saudi Arabia and Oman, have announced recently they will risk deficits next year instead of cutting back on spending, according to the Wall Street Journal.
Analysts have raised concerns about the large debt load Dubai has taken on in recent years to finance its explosive growth, mostly in real estate. Dubai is one of seven semiautonomous emirates that make up the United Arab Emirates.
Credit-rating agencies recently have revised downward the outlook -- and in some cases, the credit rating -- for a handful of Dubai-controlled corporations. Dubai doesn't have its own sovereign-debt rating. The city-state doesn't pump much oil itself, so it has depended on attracting foreign investment, especially from its oil-rich neighbors, and borrowing to finance growth.
The contagion that started on Wall Street in 2008 is fast spreading around the globe. The deepening recession in the United States and the end of speculative bubble has brought the oil price down to below $40 a barrel, down from $150 a barrel a year ago. The US consumer price index dropped 0.7% in December, 2009 from the previous month. Consumer prices rose just 0.1% compared to December 2007, the lowest calendar-year increase since 1954 and well below the Fed's 1.5% to 2% preference over the long run. The CPI swelled 4.1% in 2007. The core CPI, in contrast, was up 1.8% last year, though it did fall 0.3% on an annual basis during the fourth quarter.
A large number of families in Bangladesh, Sri Lanka, India, Nepal and Pakistan depend on remittances of tens of billions of dollars from workers in the oil-rich states.
UAE investors alone have invested over $13b in Pakistan during the last few years. The deteriorating economy of the oil-rich Arab nations will adversely impact foreign investments in South Asia in general. Major real estate developments by companies such Abraaj and
Emaar in India and Pakistan are likely to be delayed or scrapped.
While the oil price declines are going to spell significant relief for South Asians, the loss of remittances and foreign investments will also hurt their economies. It's too early to tell if the net effect will be positive, negative or zero.