Dubai Freezes Hiring, New Projects as Pandemic Hurts Revenue
(Bloomberg) --
Dubai’s government is freezing all hiring and cutting administrative spending by at least 20% across departments as the coronavirus pandemic squeezes state revenue.
The emirate’s Department of Finance on Wednesday also ordered a 50% reduction in capital spending and a delay to new government construction projects, according to a letter sent to all state departments by Director General Abdulrahman Al Saleh and seen by Bloomberg.
The Middle East transport and business hub is forced to shore up its finances by cutting spending and raising funds just when the economy needs it most. The deadly coronavirus has shut down much of Dubai’s economy, heavily dependent on tourism, trade and retail, while lower oil prices are hurting federal coffers.
“Dubai has little alternative but to cut spending in order to keep its fiscal situation controlled,” said Christopher Payne, chief economist at Peninsula Real Estate in Dubai. “If I was a bond holder or prospective bond holder, I’d be pleased to see this action being taken.”
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The government of Dubai is in talks with banks to raise funding, while its flag carrier Emirates is mulling billions of dollars of loans. Dubai, one of the seven sheikhdoms that make up the United Arab Emirates, raised 1 billion dirhams ($272 million) from the private placement of Islamic bonds. It’s also discussing other financing options, according to people with knowledge of the matter.
The Department of Finance’s measures include:
Freezing all hiring and stopping all promotions.Suspending payments for travel, car and mobile phone allowances to employees.Halting all spending earmarked for conferences, training and other eventsReviewing all existing contracts.Cutting capital spending by a minimum 50%.Reducing spending on ongoing construction projects by ensuring no cost overruns and conducting value engineering for all projects as well as delaying new projects.
Capital spending cuts will likely bypass the majority of Dubai’s projects which are carried out by government-related entities, but aren’t directly funded by the state, according to two people familiar with the matter who declined to be identified. Cuts are only applicable to projects directly undertaken by the government such as roads and other infrastructure, they said.
A representative for the Department of Finance couldn’t immediately comment.
Business conditions in Dubai worsened in March to the lowest level since IHS Markit began compiling its purchasing managers’ index a decade ago. The emirate’s five-year credit-default swaps surged to about 350 basis points last month, the highest level since 2012.
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