S&P Global Ratings has affirmed its ‘AA’ long-term and ‘A-1+’ short-term foreign and local currency sovereign credit ratings on the UAE Emirate of Abu Dhabi.
The outlook is stable, it said.
The ratings are supported by Abu Dhabi’s strong fiscal and external positions. The exceptional strength of the government’s net asset position provides a buffer to counter the negative impact of oil price declines on economic growth and government revenues, as well as on the external account, S&P said.
‘The ratings are constrained by our assessment that the emirate has less-developed political institutions than non-regional peers in the same rating category. Limited monetary policy flexibility (given the UAE dirham’s peg to the US dollar), gaps and delays in the provision of economic and fiscal data, and the underdeveloped local currency domestic bond market also weigh on the ratings’, it said.
‘We expect the emirate will maintain its extremely strong net fiscal asset position, which we project at about 260% of GDP on average over 2016-2019. This is one of the highest net government asset ratios among the sovereigns we rate’, it said.
Despite the recent decline in oil prices, Abu Dhabi maintains one of the highest GDP per capita levels in the world, and its very strong net government asset position, mostly in foreign currency, makes the emirate’s economy resilient to shocks in the commodity market.
The agency estimates Abu Dhabi’s GDP per capita at about $68,000 in 2016. The average change in real GDP per capita, weighted as per its criteria, will likely show a contraction of about 3% on average in 2016-2019, largely due to high levels of immigration, it said.
‘We estimate that the population increased by 70% between 2008 and 2015 to 2.8mn, and will reach about 3.5mn by 2020. Real GDP per capita growth is well below that of peers in the same GDP-per-capita category. But, in our view, wealth levels in the economy could substantially cushion potential risks’.
Abu Dhabi’s nominal GDP fell by about 14% in 2015, due to the sharp drop in oil prices. Nevertheless, the real economic growth rate, at 6%, was much stronger than the previously expected 2%, as oil production increased, S&P said.
In 2015, Abu Dhabi derived about 50% of its real GDP and 80% of government revenues from the hydrocarbons sector: oil taxes and royalties, plus dividends from state-owned oil producer, refiner, and distributor Abu Dhabi National Oil Co or ADNOC.
‘We assume an average Brent oil price of $46 per barrel in 2016-2019. In our view, government policy to encourage the economic contribution of the non-oil private sector is likely to have a significant effect only over the medium to long term’.
With revenues declining by 21% due to falling oil and gas income, the agency estimates the general government deficit will widen to 5% of GDP in 2016, from around 4% in 2015, based on the government’s preliminary approved budget.
It projected Abu Dhabi’s fiscal balance to show a deficit of about 4% of GDP on average in 2016-2019.
