Moody’s Investors Service said on Thursday it has upgraded Abu Dhabi’s credit outlook to stable from negative due to the emirate’s ability to diversify sources of revenue during the period of low oil prices as well as signs of a rebound in the economy.
At the same time, the rating agency said that it had affirmed the long and short term issuer ratings for Abu Dhabi at Aa2/P-1, one of the agency’s highest credit ratings.
“The weaker oil price and its impact on government finances and the economy has prompted a substantial acceleration in reforms containing fiscal pressures and supportive of the emirate’s diversification strategy,” it said in a note.
“The authorities have enacted broad subsidy reforms and expenditure cuts. Fuel, electricity and water prices were increased more rapidly and effectively than in other Gulf Cooperation Council countries. Together with these reforms, reductions in capital expenditures and transfers allowed Abu Dhabi’s government spending to shrink by 23 per cent over two years.”
As well as having moved to reduce subsidies, the rating agency said that Abu Dhabi still had ample reserves of cash and the fiscal reserves would remain over 200 per cent of GDP in the next couple of years if the price of oil remains between US$40 and $60 a barrel.
The agency said these fiscal buffers would very likely support the emirate, whose fiscal break even price for oil is estimated at $54 a barrel.
Additionally, the rating agency said the economy is showing signs of rebounding amid the gains in the price of oil this year from the multi-year lows seen last year.
Moody’s is forecasting Abu Dhabi’s economy to advance 2.2 per cent in 2018 from 1.5 per cent this year.
Moody’s joins a number of other economists in contributing to a bout of optimism about the fortunes of the emirate and the UAE at large.
The banking sector is supporting Abu Dhabi’s growth prospects, according to Moody’s.
“With a capital adequacy ratio of 18.9 per cent, the banking system is well positioned to support the economic recovery through credit expansion as liquidity conditions are improving,” it said.
mkassem@thenational.ae
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