“Depending on how debt is managed in Dubai, foreigners will decide whether or not they will invest in UAE”

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Growth in the Gulf Cooperation Council states is expected to rise to 4.4 percent in 2010 and 4.7 percent in 2011, the Washington-based Institute of International Finance (IFF) said in a report on Monday.

United Arab Emirates is forecast to lag behind the other Gulf countries at two percent growth in 2010 and 3.1 percent the following year in what the report described as a “sluggish recovery.”

However, the report said that the UAE’s “growth could reach 2.7 percent in 2010 and 4.2 percent in 2011” if debt-laden Dubai successfully resolves its debt issues and accelerates reforms.

After contracting by 3.5 percent in 2009, Dubai’s economy could contract by 0.7 percent in 2010, the report said.

“Dubai’s debt crisis has punctured market confidence,” George Abed, senior counsellor and director of the IIF’s Middle East and North Africa department, told reporters.

“The need for greater transparency… has become urgent,” he said, adding that greater support from neighbouring oil-rich Abu Dhabi is needed to resolve Dubai’s debt crisis.

“Depending on how the debt is managed in Dubai, foreigners will decide whether or not they will invest in the United Arab Emirates,” Abed said.

Dubai’s state-owned construction firms borrowed heavily to finance massive construction projects during the city’s property boom, which ground to a halt after the emirate was hit by the global financial crisis.

Dubai rocked global financial markets late last November when it said it might need to freeze debt payments by its largest conglomerate, Dubai World, stoking fears of a state default over sovereign debt.

The emirate’s debt is estimated at between 80 and 100 billion dollars, but some say it may owe as much as 170 billion dollars.

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