Fitch expects Abu Dhabi to post deficit as it predicts higher spending

The credit ratings agency Fitch said yesterday it is forecasting a 5.9 per cent deficit for Abu Dhabi this year, unchanged from last year, and higher expenditure following two years of contraction in spending.

Next year the emirate is expected to post a 1.5 per cent surplus as oil prices recover to US$55 per barrel and the introduction of value-added tax generates 0.5 per cent of GDP.

In addition, utility price increases and new taxes on hotels and rents will help to shore up revenue.

Fitch maintained Abu Dhabi’s AA rating with a stable outlook, citing the emirate’s strong fiscal and financial buffers and high GDP per capita.

Abu Dhabi is expected to post a deficit this year based on an oil price of $45 per barrel. Spending is forecast to grow by 3 per cent this year after shrinking by 10.3 per cent last year and by 18.1 per cent in 2015.

Abu Dhabi has yet to reveal its 2017 budget.

“With an estimated fiscal break-even oil price of around $60 per barrel, Abu Dhabi could sustain present deficit levels for decades by drawing on its external assets,” said Fitch.

The agency estimates that Abu Dhabi sovereign net foreign assets were 282 per cent of GDP last year, larger than the AA median of 61 per cent of GDP, while government debt was 3.6 per cent of GDP.

Abu Dhabi, which issued a US$5 billion bond last year, is expected to continue to tap international and local debt markets and draw on assets of its wealth funds, mainly the Abu Dhabi Investment Authority (Adia), to finance the deficit.

“Fitch expects the value of Adia assets to be little changed by end-2018 as investment returns (based on conservative assumptions) would offset drawdowns for financing,” it said.

The emirate is also forging ahead with fiscal reforms. Among these reforms are mergers between government-owned entities, whose debt has fallen to $47bn last year from $100bn in 2012 as the government exercises control over financing and capital spending plans.

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