"Dubai's growth was too fast"

Former President James Wolfensohn

While many have attributed Dubai's financial woes to an unstable property market, former World Bank President James Wolfensohn believes the emirate's woes were due to over-leveraging, reliance on continuous economic growth and too rapid a rate of development.

Speaking at the Global Competitiveness Forum in Riyadh, Wolfensohn said: "I think the leadership in Dubai had all the right objectives in terms of building an economically competitive environment without the benefit of hydrocarbons.

"Therefore the Sheikh decided that he would focus on the service industries, on education, on the creation of space in which you could live comfortably and the provision of services. And I think that was a pretty good strategy.

"What is now evident is that it was probably implemented too quickly, without the space to absorb it. And because of the leverage that was necessary to get it done quickly, it was dependent on continuous economic growth, so when growth stopped, the leverage hit and it ran into troubles."

These troubles led to Dubai World delaying its debt repayments for six monthsa, causibng panic on markets around the world. However, with no oil reserves unlike neighbours such as Abu Dhabi, did Dubai's government have a choice?

Bad timing

"It doesn't mean I think that the overall strategy was bad, but I do think the timing and the risk of extra leverage, as has so often happened in the past, came back to haunt him. And he has to go through that now with all the reorganisation," Wolfensohn said at the conference, but added that the result of the leveraging hit the emirate harder than others.

"I think directionally it (Dubai's development) was great, I think in terms of implementation it was too quick and got too leveraged and was too dependent on continuous economic growth and when that stopped the effect of leverage is the counter.

"It means you fall back more quickly than you grow, and that is what has hit Dubai."

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