After months of negative publicity Dubai World has at last been able to announce a significant step forward towards the restructuring of $23.5bn debt pile. Under the terms of the proposed deal, the government will swap $8.9bn of debt for fresh equity, while the remaining $14.4bn of debt will be swapped into new five- and eight-year loans.

The Dubai World restructuring will help boost confidence. It may get banks lending again

Already, the seven-member steering group of banks, which represents around 60 per cent of the $14.4bn owed to financial creditors, has agreed to the proposals.

Its members will have been partly swayed by the fact that Dubai World was threatening to stop paying interest on its outstanding loans unless a deal was reached before the end of May. Banks may now avoid having to classify the debt as non-performing.

In June, the wider creditor group will have a chance to air their views on the deal. Much more negotiation is needed, and could still take several months, but so far progress has exceeded expectations.

That an agreement has been made so fast will be a major boon to the emirate’s economy. The Dubai World restructuring has been one of the largest symptoms of the hangover brought on by a decade of extravagance.

But with a second year of recession predicted for the emirate in 2010, the government desperately wants to get the real estate sector moving again to help it return to growth, especially given that by some estimates construction and real estate made up over 50 per cent of gross domestic product.

The Dubai World restructuring will help boost confidence. It may get banks lending again. But until a deal is struck with trade creditors of Nakheel, and the large number of other Dubai entities sitting on stacks of unpaid bills, the emirate’s economic growth will remain stunted.