By Ali Khalil

DUBAI, May 21, 2012 (AFP) - The International Monetary Fund said on Monday that refinancing the maturing debt of state-linked companies in the United Arab Emirates poses a challenge as the global financial environment remains volatile.

"Debt rollover risks remain substantial," said Harald Finger, the head of the IMF team which held annual consultations with UAE authorities.

But he told a telephone conference that "the situation has improved," while the UAE economy continues to recover after it was hit by the global financial crisis.

In its annual report on the country, the IMF said some $30 billion of debt owed by Government Related Entities (GREs) were maturing this year, while more than $24 billion are due the year after.

"The GREs high dependence on foreign funding increases the vulnerability to rollover and financing risk, especially in the current volatile external financial environment," it said.

"This vulnerability is exacerbated by the deleveraging of European banks, which have been reducing their exposure to the region," it added.

Dubai's largest GRE, Dubai World, had rocked global markets in autumn 2009 when it signalled a need to freeze payments on debt exceeding $26 billion, before getting government help and reaching an agreement with lenders to restructure $14.7 billion.

Abu Dhabi GREs have also amassed debt as they channelled huge amounts of funds into projects as the deep-pocketed emirate embarked on a massive development plan.

The IMF put the total debt of UAE GREs at $184.8 billion in March 2012, representing 51.3 percent of the Gulf state's gross domestic product in 2011, "which remains high in international comparison".

Abu Dhabi GREs' debt stood at $100.6 billion in March, or 45.6 percent of the emirate's GDP, while Dubai GREs owe $84.3 billion of debt, or 60.4 percent of the GDP of the city state which has few oil resources, according to IMF-compiled figures.

The numbers showed a drop in Dubai GREs debt from $89.4 billion in 2010 compared to a rise from $92.9 billion in the case of Abu Dhabi's GREs.

The IMF pointed out that some European banks may be trimming their credit due to the eurozone debt crisis, which means that UAE entities might not be able to rely on their traditional lenders for rollovers and look elsewhere.

"In response to the prospects that some European banks may not renew their credit, GREs are actively looking for alternative investors, particularly in Asia and the Gulf region," it said.

It also said that improved economic prospects in the UAE, with non-hydrocarbon GDP growth picking up, were improving asset prices and cash flows of the GREs that were avoiding to offload assets at low prices.

"A number of GREs are planning to use cash from asset sales and operational cash flow to repay part of the maturing debt," it said.

The IMF estimated UAE real GDP growth in 2011 to have reached 4.9 percent, with non-hydrocrabon growth strengthening to around 2.7 percent, on the back of strong trade, logistics and a surging tourism sector.

The UAE economy grew by 3.3 percent in 2010 after contracting by 3.2 percent in 2009, according to IMF figures.

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