Oil-rich Abu Dhabi and the UAE central bank agreed Sunday to roll over $20 billion in loans to neighbouring debt-laden Dubai after it was hit by the 2009 global financial crisis.
The government of Abu Dhabi agreed to roll over a loan of $10 billion for a renewable five years, the state news agency WAM reported.
The Abu Dhabi-based central bank of the UAE federation at the same time renewed subscription to Dubai bonds worth $10 billion for five years, it said.
The loans, that were due this year, will have an interest rate of one percent, WAM said.
"These agreements are made within the context of its parties' continued efforts to boost the competitiveness of the UAE economy on both regional and international levels, and to reflect the upturns Dubai's domestic economy has witnessed over the past few years," WAM said.
"This is positive for Dubai, but it was largely expected," said Monica Malik, chief economist at EFG-Hermes investment bank in Dubai.
"It is very positive for Dubai in terms of meeting its debt obligations for 2014, which was a heavy year, mainly due to the maturing debt owed to the central bank and Abu Dhabi," she told AFP.
Dubai had $36.5 billion of debt maturing this year, including the debt just rolled over by Abu Dhabi and the central bank, according to figures published last year.
Malik said the reduction in the loans' interest rate to one percent, from four percent earlier, was "particularly notable", saying it will be "supportive of Dubai refocusing on investment".
Dubai sent jitters through global financial markets in autumn 2009 when it signalled problems in servicing mountains of debt owed by government-related entities.
Dubai World group was the first to expose the emirate's debt problem, saying it was facing difficulty in repaying debt amounting to $26 billion.
Other GREs followed suit.
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- Growth follows crisis -
The once rapidly booming economy of Dubai was hit hard by the world financial crisis, which turned off the tap on easily available foreign finance, leaving many of its companies high and dry and with a heavy debt burden.
Dubai and its government-related firms piled up some $113 billion in debt.
But with the help of deep-pocketed Abu Dhabi, and following long talks with lenders, Dubai managed to restructure most of its debt.
The economy of the glitzy emirate, home to the world's tallest tower and large man-made islands, has since bounced back strongly, banking on its core sectors of trade, tourism and transport.
The economy contracted 2.4 percent in 2009, but growth hit 3.4 percent in 2011, and was just under four percent in 2012. It exceeded four percent in 2013.
And Dubai's property market, which nosedived in 2010 after five years of rapid growth, is recovering strongly, with reports of a 35 percent rise in prices in 2013.
The sector received a major boost after Dubai in November won the right to host the World Expo 2020.
The rise in prices has triggered some warnings that they might not be sustainable, however.
Dubai is one of seven emirates forming the UAE federation, which has been spared during the wave of Arab Spring uprisings that hit most Arab countries.
The emirate has been largely seen as a safe haven for capital fleeing troubled countries in the region.