Last year I wrote a blog post about the financial collapse of Dubai World and its effects on Dubai’s own Roman-candle economy and on other emerging economies worldwide. I had previously written about the effects of the global financial crisis on Dubai’s prospects. I concluded that the Dubai World implosion, together with the economy-wide devastation resulting from the global recession, did not bode well, but that it was too early to write off Dubai’s future role in the world economy, given its ability to sell ever-more audacious and astonishing projects to eager investors.

Almost a year on, the prospect is, if anything, even murkier. On the one hand, the $25 billion restructuring of Dubai World has been agreed by 99 per cent of the company’s creditors. A new $1 billion bond issue, announced yesterday by Dubai’s government, seems timed to take advantage of the rising confidence that may result from the Dubai World restructuring, which was finalized earlier this month. At the same time, the bond prospectus notes that government regulators have withdrawn authorization for 495 property development projects, representing about half of all planned developments in the emirate. This in addition to the numerous projects that developers themselves have canceled for lack of financing.

This would be devastating for any economy, but it is doubly so for Dubai, which depends on property and finance for over 40% of its GDP (against less than 2.5% for oil). According to an article in today’s Financial Times, government revenue fell by 13% in 2009, but the drop would have been much greater were it not for a sharp rise on other revenues such as police fines and revenues from airport and toll road user fees. Nevertheless, Dubai expects a 2010 fiscal deficit of $1.6 billion. The bond issue prospectus also shows a rise in the overall debt of the government and state-owned companies at about $28.5 billion, up from $19 billion a year ago. These numbers exclude many state-affiliated entities such as companies owned by the ruling Al-Makhtoum family rather than by the government itself. The emirate’s total debt is estimated at around $110 billion.

Its huge debt has not blocked on Dubai’s access to capital markets, though it has raised the cost of borrowing. The current bond issue is expected to yield 6.875% for the five-year tranche and 8% for the 10-year tranche. These yields are substantially more than German or U.S. equivalents (3.7% and 2.5%, respectively, for the 10-year bond), but in the same ballpark as Ireland (6.5%), which enjoys explicit and implicit bailout guarantees from the European Union and the IMF. Private or partially private companies in Dubai will see their financing costs rise as a consequence.

The tide has shifted against Dubai. There is a widespread perception that Abu Dhabi, the leading Emirate (Abu Dhabi’s ruler is also President of the UAE, while Dubai’s ruler is Vice President), having helped bail out Dubai to the tune of $10 billion, will now call more of the shots and may restrain some of Dubai’s grander ambitions. With no small symbolic importance, Burj Dubai in downtown Dubai, the world’s tallest building, was renamed Burj Khalifa shortly before it opened in January 2010, in honor of Khalifa bin Zayed al Nayhan, the UAE President and Abu Dhabi ruler.

MSCI, renowned for its global stock market indices, in July declined to reclassify the UAE from frontier to emerging market status, a decision almost certainly related to Dubai’s ongoing problems and heightened perceptions of risk. MSCI’s UAE Index lost nearly 90% of its value during the second half of 2008, but had clawed back about half of that by November 2009, when the Dubai World collapse wiped out almost all of those recent gains. Since then, the index has traded at around a third of its early 2008 value, although there has been some rebound in the past few weeks. The Dubai Financial Market (DFM) Index has performed even worse: it closed today at 1690.19 UAE Dirhams, 70% below its May 29, 2008 close, though it has gained 14% since the end of August, presumably on news of the DW resolution. This looks like more of a blip than the beginning of a sustained climb.

I’ve said it before and I’ll repeat it here: You can’t write off Dubai, which has pulled more rabbits out of more hats than almost any other place in the world. It is likely to be a long time, however, before Dubai’s property and financial markets regain their pre-recession luster and its gravity-defying rise resumes.