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Abu Dhabi, UAEMonday 10 December 2018

S&P affirms Abu Dhabi's AA/A-1+ credit ratings as high cash reserves outweigh low oil prices 

Rating agency also affirms ratings of Sharjah and Ras Al Khaimah

S & P affirmed Abu Dhabi's rating as a result of its strong fiscal and external positions that make it resilient to commodity market fluctuations
S & P affirmed Abu Dhabi's rating as a result of its strong fiscal and external positions that make it resilient to commodity market fluctuations

S&P Global Ratings affirmed on Sunday the credit ratings for Abu Dhabi despite the recent slowdown in economic growth on account of low oil prices due, to the large cash reserves of the emirate which make it "resilient" to shocks in the commodity market.

At the same time, the rating agency also affirmed the credit ratings of both Sharjah and Ras Al Khaimah.

The rating agency said it maintained its AA/A-1+ sovereign credit rating on Abu Dhabi while keeping its outlook stable.

"The ratings are supported by Abu Dhabi's strong fiscal and external positions," the agency said. "The exceptional strength of the government's net asset position provides a buffer to counteract the negative impact of lower oil prices on economic growth, government revenues, the external account, and increased geopolitical uncertainty in the region," the agency said.

The agency said that Abu Dhabi would maintain its strong net fiscal asset position above 200 per cent of gross domestic product over 2017 to 2020, one of the highest among government economies that the rating agency reviews.

Ras Al Khaimah had its A/A-1 rating affirmed on the expectation it will continue to post fiscal surpluses and maintain its low net debt burden. Sharjah's BBB+/A-2 were also affirmed, on the back of a recovery in construction, tourism, and manufacturing. Both emirates had their stable outlooks maintained.

Like other oil producing countries, the UAE's economy has slowed in recent years due to the collapse in oil prices that started in summer 2014.

As a result, governments and companies have cut back on spending on projects and slashed jobs. Though consumer spending continues to be strong, it has been cautious and dampened growth.

Earlier this month, the International Monetary Fund lowered its growth forecast for the country for this year and 2018, as low oil prices continue to impact the economy. Overall growth this year is now projected to reach 1.3 per cent, compared with the fund's 1.5 per cent forecast in April, due to a slower expansion in the non-oil economy, which will grow 3.3 per cent, compared with 3.8 per cent in its previous forecast. The growth forecast for next year was lowered to 3.4 per cent from 4.4 per cent in April, due to oil growth easing to 3.2 per cent, compared with 6.2 per cent in the April forecast.

The IMF said over the medium term non-oil growth is forecast to stay at around 3 per cent, thanks to higher investment in the lead-up to Expo 2020. It also said the introduction of a 5 per cent value added tax (VAT) in January next year will not have a “significant adverse impact on growth".

S&P said that it expects Abu Dhabi's real economic growth to recover in coming years, averaging 2.5 per cent growth annually as a result of a gradual increase in oil prices and planned public investments.

"The stable outlook on Abu Dhabi reflects our expectation that economic growth will gradually pick up and Abu Dhabi's fiscal position will remain strong over the next two years, although structural and institutional weakness will likely persist," the rating agency said.

When it comes to Sharjah and Ras Al Khaimah, the rating agency said that the two emirates as part of the United Arab Emirates would most likely be supported by the federation in the case of any financial emergency.