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Abu Dhabi, UAEMonday 17 December 2018

S&P maintains BBB+/A-2 Rating forSharjah amid growth expectations 

Emirate likely to further reduce budget deficit and benefit from Expo 2020

S&P expects an acceleration in Sharjah's GDP growth in the coming years. Antonie Robertson/The National
S&P expects an acceleration in Sharjah's GDP growth in the coming years. Antonie Robertson/The National

S&P Global Ratings has affirmed its BBB+/A-2 credit rating for Sharjah on expectations that the emirate's economy will recover in the next three years thanks to a deficit reduction programme and added investment related to Expo 2020.

"We expect an acceleration in GDP growth in 2018, based on the increased economic activity in the real estate and construction sectors and the spillover effects of rising investment in nearby Dubai in relation to its World Expo 2020," said the rating agency, which held its outlook for the emirate's economy as stable.

The emirate's economy is expected to average 2 per cent growth a year from 2018 to 2021, S&P predicted. Sharjah's government has yet to disclose its own GDP growth forecasts for the coming year.

"In our view, the economic structure of Sharjah displays a relatively high degree of diversity, particularly compared with most Gulf Cooperation Council sovereigns." The agency noted that Sharjah's manufacturing sector contributes 17 per cent of the emirate's GDP while real estate, wholesale and retail trade, and financial services all account for more than 10 per cent of GDP.

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Plans for a trio of real estate projects worth Dh2.7 billion (US$734 million) to be built in Sharjah were unveiled by the emirate's ruler last week. The three mixed-use projects - Maryam Island, Kalba Waterfront, and Palace Al Khan - are the first to be developed by Eagle Hills Sharjah Development, a partnership between the Sharjah Investment and Development Authority (Shurooq) and Abu Dhabi-based real estate developer Eagle Hills.

S&P said that it didn't think the diplomatic rift between the UAE and Qatar would derail Sharjah's growth trajectory and that the emirate would benefit from rising oil prices. The rating agency in November raised its Brent oil price forecast by 10 per cent to $55 per barrel for 2018, amid expectations of growing crude oil demand and that Opec and other producers will continue to cut production beyond March.

"At this stage, we expect the diplomatic rift with Qatar will only have a limited impact on the UAE, including Sharjah," the agency said.

"We understand that some of the Qatari gas supply to the UAE is allocated to Sharjah Electricity and Water Authority. We expect the Dolphin pipeline from Qatar to the UAE will remain open, absent a further significant escalation in regional tensions."

Separately, S&P Global Rating also affirmed the 'A/A-1' rating of Ras Al Khaimah on expectations that the emirate's economy, like Sharjah's, would improve in the next three years. The rating agency said that it had a stable outlook on the emirate because it has low debt and a strong fiscal position. "We expect that the Emirate of Ras Al Khaimah will continue to record fiscal surpluses and maintain its low debt level," the agency said.

"The stable outlook reflects our expectation that RAK's economic performance will improve gradually over the period to 2021, supported by a recovery in domestic demand regionally and a high level of capital spending in the larger Emirates."

S&P said it was expecting GDP growth to average 2.5 per cent from 2018 to 2021. The emirate's government has yet to share its economic forecasts for the year ahead.