Ras Al Khaimah said its population grew by half in a single year. That raised eyebrows at the S&P ratings agency, which warned of a possible downgrade to the emirate’s debt. The lesson? More reliable economic data is needed.
The importance of statistics in the UAE
With its palm tree-lined avenues, sea-facing views and blend of apartments, villas and shops, Mina Al Arab is one of the prime new residential complexes to spring up in Ras Al Khaimah.
Catering partly for the influx of people seeking refuge from surging rents in Dubai, the development has proven popular since opening last year. About 65 per cent of the 2,000 apartments and villas are already occupied, reckons RAK Properties, the developer.
Other property schemes are planned too as the emirate seeks to tap into growing interest from investors and renters. Such projects are an indication that RAK’s population and economy are on the up.
But the emirate’s demographic figures dating back to four years ago have come under scrutiny. Standard & Poor’s, the ratings agency, this month flagged as “not realistic” revised local government data showing a more than 50 per cent jump in the emirate’s population to 413,000 in 2010 from 267,000 in 2009. The figure for 2010 had been changed from an initial estimate of 279,000.
Despite the emirate’s strong fiscal position – backstopped by the federal Government’s financial clout – S&P deemed the situation serious enough to lower its outlook on RAK from stable to negative, citing “weaknesses” in demographic and economic data and “underdeveloped” government institutions.
The move reflected at least a one-in-three possibility that the agency would downgrade RAK’s A/A-1 long-term and short-term foreign and local currency sovereign credit ratings over the next two years if the “effectiveness and predictability of Ras Al Khaimah’s government institutions and data availability remains at current levels.”
A downgrade would raise the risk of the emirate having to pay a higher price to borrow on capital markets. That could be harmful as the emirate has been reliant on bond investors to fund a portion of its spending. In November, it issued a US$500 million sukuk, its first since 2009, through RAK Capital.
The episode is also a reminder of a nagging headache that economists and analysts focusing on the UAE and the wider region have long put up with: a lack of timely and reliable data.
The UAE has made strides in improving the quality of its data output in recent years. Since its launch in 2010, the National Bureau of Statistics (NBS) has focused on sourcing data spanning three main areas: economics; demographics and social statistics; and agriculture and environmental studies.
The Statistics Centre — Abu Dhabi and Dubai Statistics Centre have made progress. But such institutions are still lacking in the other emirates. Ras Al Khaimah passed a law in 2008 to launch its own statistics agency. Six years on, the agency has not materialised.
S&P are not the only ones to have spotted the statistics gap – the International Monetary Fund has too.
“Overall, while significant improvements in the data quality have been achieved and are under way, there remains ample room for improvement in the UAE’s statistical system,” says Harald Finger, deputy division chief of the regional studies division at the IMF’s Middle East and Central Asia department.
One of the challenges for the federal and local governments is that the UAE has grown so quickly as more expatriates arrive and the economy expands. The population of Dubai, for example, has more than doubled since 2000. Institutions have struggled to keep pace with the changes.
At the heart of S&P’s concerns is the availability of accurate federal population numbers that can give a clear idea about the make-up of the individual emirates.
“It’s partly an issue for Ras Al Khaimah but also an issue more broadly for the federal government in terms of providing strong population data that can be broken down into the constituent parts accurately,” says Trevor Cullinan, director, sovereign ratings at S&P in Dubai.
The UAE’s last census was carried out in 2005, which assessed the population as 4.10 million. In the four following years – between 2006 and 2009 – population data was estimated using the component method, which involved gauging growth based on administrative records of births, deaths and net migration.
Then in 2010 plans for a federal census that year were scrapped due to a lack of financial resources, according to the NBS’s website. A year later, officials also decided to switch the methodology for calculating the 2010 population to an exponential growth model, which uses a formula to assess growth at a constant rate. Using this method, the federal population for 2010 was estimated at 8.26m, up from 8.19m the previous year using the old methodology. That is the last year for which official population data is available.
S&P raised the alarm when RAK then used the same data system to assess its own population as a proportion of the federal figures. The result was the more than 50 per cent leap in its estimated population in 2010.
“An adjustment of the national population was performed in 2011 for reasons beyond our control and the result was a big jump in our data,” says Jamal Bellout, director of studies and statistics administration at RAK’s Department of Economic Development, which is responsible for the emirate’s economic data. He says the department was working with the NBS to try to reassess the data.
For reasons still unclear to S&P, the revision in the federal methodology did not cause a major change in the UAE’s overall population number. Officials at the NBS were not available for comment to The National.
RAK’s data looked increasingly shaky when S&P turned to the emirate’s official GDP figures. Estimates for GDP growth were not raised to reflect the upward revision to population growth. Therefore, S&P warned that its estimate of the emirate’s GDP per capita for this year would slide to about US$17,500 per capita from its previous forecast of $24,500.
“In all cases, we understand that GDP and population data is an estimate,” says Mr Cullinan. “We have to interpret the data to make assumptions on wealth levels but if the base data is erratic then that adds to the challenge.”
S&P said the availability and timeliness of RAK’s data, spanning population, national income and external accounts, was among the weakest of the sovereigns it rated. It is not the first time the ratings agency has warned a GCC sovereign about the paucity of its data. When it assigned its A/A-1 long and short-term foreign and local currency credit ratings to Sharjah in January, S&P warned that limited data availability was a “rating constraint.”
But RAK is at the most immediate risk of paying the price in the form of a downgrade. It is particularly galling for officials as the emirate enjoys a renaissance across its economy.
“RAK is booming,” says Mr Bellout. “It does not make sense to have a drop in our rating.”
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