S&P Maintains Strong Abu Dhabi Ratings
The agency affirmed its ‘AA’ long-term ratings for the emirate despite low Crude Oil prices
Ratings agency S&P has maintained its strong ratings for Abu Dhabi despite the impact of low Crude Oil prices on the Emirate’s economy.
In its latest report, S&P affirmed its ‘AA’ long-term and ‘A-1+’ short-term foreign and local currency sovereign credit ratings on Abu Dhabi, with a stable outlook.
“The ratings are supported by Abu Dhabi’s strong fiscal and external positions,” it said.
“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 it projects the Emirate’s net fiscal asset position 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.”
The agency previously projected the government’s net asset position over 2016-2019 at 320% of GDP.
Meanwhile Abu Dhabi’s GDP per capita is projected to reach about $68,000 in Y 2016.
“The average change in real GDP per capita, weighted as per our criteria, will likely show a contraction of about 3% on average in 2016-2019, largely due to high levels of immigration,” the report said.
The emirate’s population increased by 70% between Y’s 2008 and 2015 to 2.8-M, and will reach about 3.5-M by Y 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,” S&P stated.
Abu Dhabi’s nominal GDP fell by about 14% in Y 2015, due to the sharp drop in oil prices. But the real economic growth rate at 6% was much stronger than the previously expected 2%, as Crude Oil production increased.
In Y 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 (ADNOC).
With revenues declining by 21% due to falling Oil & Gas income, S&P estimates that the general government deficit will widen to 5% of GDP in Y 2016, from around 4% in Y 2015.
“We project Abu Dhabi’s fiscal balance will show a deficit of about 4% of GDP on average in Y’s 2016-2019,” it said.
“We assume an average Brent Crude Oil price of 46 bbl in Y’s 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,” the report added.
The Abu Dhabi government has implemented measures such as cutting utility subsidies and introducing fixed fuel prices, which have helped the economy.
“The stable outlook on Abu Dhabi reflects our view of balanced risks to the ratings over the next two years. We believe that Abu Dhabi’s economy will remain resilient and its fiscal position will remain extremely strong, but we also anticipate continued structural and institutional weaknesses,” the report stated.
S&P would consider a negative rating action if domestic or regional events compromised the political and economic stability in Abu Dhabi.
It added: “We could consider raising the ratings on Abu Dhabi if we observed pronounced improvements in data transparency, including on fiscal assets and external data, alongside further progress in institutional reforms.
“What’s more, measures to improve the effectiveness of monetary policy, such as developing domestic capital markets, could be positive for the ratings over time.”
By Aarti Nagraj
Paul Ebeling, Editor