Agency says exceptional strength of the government's net asset position provides a buffer to counteract the effect of oil price swings
Abu Dhabi economy on track for steady growth, S&P says
Rating agency S&P Global Ratings assigned Abu Dhabi a stable outlook on the expectation that economic growth will “steadily recover” and the UAE’s fiscal position will remain strong over the next two years, it said in a report on Saturday.
S&P affirmed its 'AA/A-1+' sovereign credit ratings on the emirate on the back of its strong fiscal and external positions.
“The exceptional strength of the government's net asset position provides a buffer to counteract the effect of oil price swings on economic growth, government revenues, the external account, and increasing geopolitical uncertainty,” it said.
The rating agency forecast a gradual rise in gross domestic product, accounting for inflation, on the back of recovering oil prices and a revival in investments.
“Following several years of expenditure rationalisation, we expect the government will moderately increase spending to support a revival in growth,” S&P said.
Abu Dhabi’s real GDP growth will reach 1.5 per cent in 2018, thanks to higher oil production in the second half of the year, to 2 per cent next year, it said.
This is projected to gradually rise to 3 per cent by 2021 due to higher oil production, higher investment and recovering domestic credit growth bolstered by higher oil prices and improving demand in the region.
It estimates Abu Dhabi Government’s fiscal surplus will rise to 9.3 per cent of GDP in 2018, from 8.8 per cent last year.
The surplus is expected to reach an average of 7.1 per cent in 2019 to 2021, the report said. This takes into account small increases in spending to stimulate investment and growth, lower oil revenues due to decreasing oil prices from 2019 that would be partly offset by rising oil production, and higher non-oil revenues as VAT compliance increases and consumption recovers.
The rate of unemployment in the emirate is forecast to drop to 4 per cent this year through to 2021 from 5 per cent in 2017.
The International Monetary Fund raised its forecast for the UAE's economic growth this year and next on expectations that oil production and government spending will increase.
The nation's economy is projected to expand 2.9 per cent this year and 3.7 per cent in 2019, the IMF said in October.
S&P said it expected a continuation in government policy to pursue economic and revenue diversification and engage the private sector "but we believe the hydrocarbon sector will continue to dominate and gains will likely trickle down over the longer term".
"The stable outlook on Abu Dhabi reflects our expectation that economic growth will steadily recover and that the country's fiscal position will remain strong over the next two years," S&P said.
Abu Dhabi maintains one of the highest levels of GDP per capita in the world, and the emirate's strong net government asset position, mostly in foreign currency, makes its economy resilient to shocks in the commodity market, S&P said.
"We estimate Abu Dhabi's GDP per capita at close to $82,000 in 2018."
The agency said it expected Abu Dhabi National Oil Company to gradually increase oil production, subject to renewed Opec production limits, in line with its target to increase production capacity to 4 million barrels per day (bpd) to 2020 and 5 million bpd by 2030, from 3.1 million bpd currently.
Adnoc recently announced new discoveries of oil and gas - 1 billion barrels of oil, which would add 1 per cent to previously proven reserves, and 15 trillion standard cubic feet of gas, which would add 7 per cent to current gas reserves.
"We expect the Government will moderately increase spending to support a revival in growth," S&P said.