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Infrastructure development in Middle East expected to slow

Analysts say that Gulf governments will have to diversify their funding sources and the lower oil price could halt a number of infrastructure projects, particularly in Dubai.

Dubai's Roads and Transport Authority is investing Dh100 billion in projects including the Dubai Metro and there is now unease about where the funding will come from.

'Oil is coming down. Oil is the bread and butter of Middle Eastern countries. If the incomes from oil become much less, it will affect the economies. It's our main worry,' said Dr Jasem Al Mannai, head of the Arab Monetary Fund.

He said that years of high oil revenues meant that governments got excited and spent more money. Now it is going to prove difficult to find the money to complete ambitious plans.

According to the International Monetary Fund (IMF), the breakeven oil price for 2008 fiscal accounts, that is the price at which a country would achieve a fiscal balance, for the United Arab Emirates is $23 a barrel. This is the lowest in the GCC and much lower than the wider average of $57. This demonstrates that most oil exporters, including the UAE can easily absorb lower world oil prices.

But this has not stopped governments deciding to re-examine publicly funded developments like infrastructure.

Publicly the governments won't admit there is a problem but behind the scenes there are frantic talks. For Dubai one solution is a bail out from Abu Dhabi but this is likely to take place discreetly behind closed doors.

But cracks are showing. Nasser Al Shaikh, Director-General of the Dubai Department of Finance, has stressed infrastructure projects in Dubai, including roads and transport and the new airport in Jebel Ali, would continue as scheduled in the Dubai Strategic Plan for 2015.

But he also admitted that the Supreme Financial Committee is studying the plans and how they are to be financed. 'We were expecting a growth rate of 11% annually until 2015 but with the current situation that will not be achieved. Dubai will continue to witness growth in its economy but at lower rates,' he admitted.