UAE joins sovereign default “at risk” list

The United Arab Emirates (UAE) and Bahrain have both been added to a list of countries most likely to suffer a sovereign debt crisis in 2010, according to analysis by RBS Group’s Global Markets division.

“Recent large scale external borrowing by quasi-sovereign entities” is given as the reason for the UAE’s inclusion in the list of countries that could face debt problems this year.

The report was designed to “try and predict sovereign debt crises” and looks at the risks to a country’s liquidity, solvency and issues such as GDP growth, inflation and exchange rate volatility.

All in all, RBS identified 14 economies as being potentially vulnerable to sovereign debt crises in 2010.

Hungary and Romania both returned to the list of potentially "crisis prone" countries in 2010 as a result of expanded current account deficits.

Other new countries added to the list for 2010 include Bahrain, Iceland, Lebanon, and the UAE. Qatar, which was seen to be at risk in 2009, dropped off the 2010 list.

The appearance of Hungary, Iceland, Latvia, Romania and Ukraine as potential risky countries tallies with the fact that all five have been forced to go to the IMF for emergency funding over the past year and a half.

Bahrain, Bulgaria, Estonia, Croatia, Kazakhstan, Lithuania and Panama were also identified as potential risk countries, although none of them have so far gone to the IMF for financing.

“The inclusion of some credits in the Middle East (Bahrain, Qatar and UAE) as potentially at risk does perhaps come as something of a surprise, albeit perhaps less so after recent developments in Dubai,” noted Timothy Ash, head of Europe, Middle East and Africa research at RBS.

The analysis was restricted in that it only revealed a country’s “ability to pay” and not its “willingness to pay”, which, after recent debt crises in Latin America and Dubai, has been shown to be critically important.