Abu Dhabi came to Dubai's rescue at the last minute on Monday, the 14th December when it offered a cash infusion of 10 billion dollars to tackle Dubai's mounting financial problems and prevent a default. The bailout package was clearly aimed at conveying the message to the international financial markets that Abu Dhabi was willing to back its neighbour.
Dubai's creditworthiness had been seriously tainted earlier by a huge debt of 60 billion dollars shouldered by its state-owned conglomerate, Dubai World, and the city-state's unwillingness to fully stand by the company. Dubai World had earlier rocked global markets on 25th November by asking creditors for a standstill on the 26 billion dollars debt, mainly linked to its two property firms, Nakheel and Limitless World.
About 4.1 billion dollars would be used to meet a deadline of repayment of loans owed by Nakheel property division. In order to seek protection from creditors, Dubai was also enacting a bankruptcy law, similar to the laws practised in USA and UK. How and when the best days for Dubai would come, only time could tell but Dubai World, the conglomerate at the centre of a 26 billion dollars debt storm, would still need creditors to agree on a massive restructuring in order to get a reprieve to cover its obligations.
Most of the analysts were of the view that the present rescue plan for Dubai World was not an indication of future deals and the emirate's troubles were far from over. A large number of other entities in Dubai were also likely to face a similar fate soon, which would make the task of Dubai's rulers much more difficult in the coming days.
Obviously, despite some optimism in the market, it is hard to escape the conclusion that the present aid package, offered by Abu Dhabi would only partly resolve the debt problems of Dubai corporate. At best, it would clear some of the uncertainty that loomed over Nakheel's immediate financial obligations. While the debt problem of Dubai and its aftermath would continue to be discussed and analysed from various angles for many years, it would be prudent for other countries to learn certain basic lessons from its economic meltdown.
The most relevant one could be to have a proper self-assessment and full realisation about the limitations of one's potential to grow and act on the world stage. If a country overburdens itself with debt and tries to overextend its domain beyond its capacity, the force of circumstances would always push it back to its place. Going by this logic, Pakistan needs to be very careful in raising and managing its foreign debt and preferably should strive to live within its own resources.
Incidentally, the economy of Pakistan is also very closely linked to the developments in Dubai, largely due to the ample inflow of home remittances and exchange of goods and services between the two on a substantial scale. We can only hope that its economy comes out from the present difficult phase without much injury so that its citizens don't have to suffer the consequences and Pakistan does not get hurt in the process.