Oil-rich Abu Dhabi and the UAE central bank agreed today to roll over USD 20 billion in loans to neighbouring debt-laden Dubai after it was hit by the 2009 global financial crisis.
The government of Abu Dhabi agreed to roll over a loan of USD 10 billion for a renewable five years, the state news agency WAM reported.
The Abu Dhabi-based central bank of the UAE federation at the same time renewed subscription to Dubai bonds worth USD 10 billion for five years, it said.
The loans, that were due this year, will have an interest rate of one percent, WAM said.
"These agreements are made within the context of its parties' continued efforts to boost the competitiveness of the UAE economy on both regional and international levels, and to reflect the upturns Dubai's domestic economy has witnessed over the past few years," WAM said.
"This is positive for Dubai, but it was largely expected," said Monica Malik, chief economist at EFG-Hermes investment bank in Dubai.
"It is very positive for Dubai in terms of meeting its debt obligations for 2014, which was a heavy year, mainly due to the maturing debt owed to the central bank and Abu Dhabi," she told AFP.
Dubai had USD 36.5 billion of debt maturing this year, including the debt just rolled over by Abu Dhabi and the central bank, according to figures published last year.
Malik said the reduction in the loans' interest rate to one per cent, from four percent earlier, was "particularly notable", saying it will be "supportive of Dubai refocusing on investment".
Dubai sent jitters through global financial markets in autumn 2009 when it signalled problems in servicing mountains of debt owed by government-related entities.
Dubai World group was the first to expose the emirate's debt problem, saying it was facing difficulty in repaying debt amounting to USD 26 billion.
