Dubai’s Growing Economy Faces High Debt Hurdle in 2014

And if that's not enough, the emirate has become the go-to place for finance in the Middle East, in the form of the Dubai International Financial Center. Tourism is up, and even the emirate's bonds are selling well, with a January offering bringing in $1.25 billion in 10-year sukuk and 30-year bonds, the latter the first of their kind that Dubai has offered.

Both lower interest rates and lower costs to insure its debt have made Dubai attractive to investors, despite its looming mountain of debt. How that debt is to be repaid, however, has yet to be addressed in terms that satisfy many of the parties concerned, particularly since despite strong growth the emirate isn't profiting enough to meet its obligations.

State-owned investment firm Dubai World had reached an agreement with banks in 2011 to restructure its $25 billion in debt, with the understanding that it would, among other things, sell off some assets. However, that has yet to happen, thanks to the effects of the global economic downturn.

Still, the Dubai government wants to avoid more debt restructuring—something that could be somewhat embarrassing for a global financial hub. Instead, it's looking toward more creative strategies, such as additional bond offerings and perhaps even some partial privatizations; IPOs of assets, rather than selloffs, could present the emirate with at least a partial solution.

Until the details are hammered out, however, investors would be wise to be wary. A March report from Moody's said, "Little progress has been made on clarifying and strengthening the legal framework for insolvencies/debt restructuring, while details of the Dubai government's capacity to support its government-related institutions remain uncertain." -Marlene Satter