Dubai woes not to reach Pak shares

[LahoreEstate]

KARACHI: The Dubai debt crisis causing turbulence in financial markets internationally may not pose any immediate or serious risk to the Pakistani economy but it could hurt individuals and complicate the government’s plans to raise at least $500m through Eurobonds early next year, according to analysts.

The announcement last week that Dubai World, the state-owned investment behemoth, would not be able to make payments on time on some of its $59bn debt has sent shivers through financial markets and caused concern among government officials globally.

However, Pakistan is believed to be a peripheral figure in the crisis and the fallout is not worrying experts here, at least not yet.

Former governor of the State Bank Ishrat Husain captured the mood of experts here by stating: ‘Our exposure is minimal. Our major trading partners are the US, Europe and the Middle East. Pakistani banks don’t have much exposure (to Dubai’s credit crisis). There could, however, be an impact on remittances.’

Remittances to Pakistan from workers abroad have boomed in recent months, rising to a record $3.9bn in July to October, a 31 per cent increase over the same period last year. Workers in the UAE contributed $680m to that figure.

Dubai is only one of the seven emirates comprising the UAE, however, and official figures for remittances from individual emirates are not available, making it difficult to assess the impact of an immediate slowdown in Dubai’s economy.

A report in The Gulf News in October estimated that Pakistanis comprise 1.25 million of the UAE’s estimated population of six million.

Even so, the immediate sting for Pakistani workers may not necessarily be very severe. Writing in this newspaper in October, A. B. Shahid noted:

‘Majority of the Pakistani workers are employed in the transport, trading, maintenance, private security and household services sectors that, in spite of contraction (in 2008), weren’t forced to lay off workers on a large scale.’

Moreover, Mr Husain noted that remittances from other regions have also risen sharply, so the net effect of a slowdown in Dubai, or even the UAE, may not be large.

There could be other, more indirect effects, though. Business analyst Khurram Husain expressed concerns about the impact on the government’s plans to raise money by floating Eurobonds early next year.

‘The Dubai crisis could make investors wary of developing markets generally and make it more difficult for the (Pakistani) government to raise money at a reasonable price.’

That would be unwelcome news for the finance ministry led by Shaukat Tarin, which is already struggling with a growing fiscal deficit.

The latest figures released by the ministry show that the fiscal deficit has risen to 1.5 per cent of GDP in the first quarter of the financial year on the back of a 24 per cent rise in expenditure.

More generally, Mr Husain cautioned that the Dubai crisis may cause investors to re-examine their assumptions about sovereign risk and guarantees.

‘Investors assumed there was an implicit sovereign guarantee of Dubai World’s debt, but that proved to be wrong. So how closely will they scrutinise other governments now, and could they find anything unsettling here?’


http://www.dawn.com/wps/wcm/connect/dawn...es--szh-05