Abu Dhabi maintains top-notch credit rating

In new research, S&P says this country will be kept on a rating of AA-1 plus despite the global fall in energy prices.

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Standard & Poor’s (S&P), a credit agency, has maintained top-notch ratings on Abu Dhabi debt despite concerns about the fiscal and economic fallout from lower oil price.

In new research, S&P says this country will be kept on a rating of AA-1 plus despite the global fall in energy prices. Oil revenue accounts for 55 per cent of Abu Dhabi’s GDP and 90 per cent of government revenue, the agency estimates.

“The ratings on Abu Dhabi are supported by its strong fiscal and external positions, which afford it fiscal policy flexibility.

“The exceptional strength of its net asset positions also provides a buffer to counter the negative impact of oil price swings on economic growth and government revenues, as well as on the external account,” S&P says in a new report on the country’s finances.

However, it adds that Abu Dhabi is still just off the most senior rating it awards because of structural factors. “The ratings are constrained by our view that the emirate has less-developed political institutions than non-regional peers in the same rating category.

“Limited monetary policy flexibility, in view of the dirham’s peg to the US dollar, and the underdeveloped local currency domestic bond market, also weigh on the ratings,” the agency says.

“We view Abu Dhabi’s economy as undiversified, notwithstanding government policy to encourage non-oil private sector growth,” the report adds.

In a snapshot of the country’s economy, S&P says: Rates of real GDP growth (adjusted for inflation) and nominal GDP growth have been robust.

“However, long-term real GDP per capita has contracted by about 4 per cent annually weighted by our criteria, largely due to the high flow of foreign workers into the emirate. This has led to an estimated cumulative jump in the population of more than 50 per cent between 2008 and 2014. Real GDP per capita growth is well below that of peers in the same category.

“We believe, however, that in a heavily resource-endowed economy such as Abu Dhabi, nominal GDP growth – which averaged 13 per cent annually during 2010-2014 – is a better measure of prosperity and could substantially cushion potential risk,” the report concludes.


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