Dubai faces "significant rollover risks" from having to repay US$31 billion (Dh113.85bn) of debt this year and next, the IMF has warned.
The emirate would probably have to pay higher borrowing costs because of the absence of a well-defined and transparent strategy to address financing for government-related companies, it said.
"With an estimated US$31bn of debt due in 2011-2012, of which at least $5bn is in the real estate sector, Dubai continues to face significant rollover risks in the short term," the IMF, based in Washington, said yesterday, following a mission to the UAE which concluded last month.
Dubai's investment and growth may also be dampened by its strategy of using the earnings of healthy government-related companies to finance under-performing companies, it said.
The IMF statement is a reminder of the significant challenges still ahead for Dubai, despite recent breakthroughs in resolving its debt issues. Dubai World's final $24.9bn debt restructuring agreement last week was a positive step for the economy.
The IMF acknowledged the agreement had improved market confidence, paving the way for other top-grade Dubai debt issuers to regain access to finance.
However, it urged the UAE as a whole to strengthen the economy's resilience to future shocks.
"The recent episode of debt restructuring in Dubai and the ramp-up of government-related entity borrowings in other emirates underline the need to identify, assess and mitigate the risks posed by these entities," it said.
Despite a strengthening economic recovery, underpinned by higher oil prices and improving trade, certain factors remained a drag on growth, according to the IMF.
A large surplus in the property market would continue to weigh on property prices, investment and growth, it said. Abu Dhabi's aim to boost its housing supply risked applying further pressure to the market, it warned.
It said the recovery could also be undermined by international sanctions against Iran, one of the UAE's largest trading partners and a traditional source of demand for Dubai property.
Unfolding unrest in the region also added risks to the outlook if sustained high oil prices choked demand in Asia.