The Standard & Poor’s credit rating agency has reaffirmed Abu Dhabi’s rating, saying the emirate was in a good financial position to weather lower oil prices despite its relatively undiversified economy.
The long-term sovereign debt rating was affirmed at AA, with short-term debt getting the top A1+ rating, as S&P said the outlook for the emirate remained stable.
The assessment reaffirmed the preliminary rating issued this month when S&P reviewed the whole Arabian Gulf region in light of the sharp fall in oil prices in recent months.
The full report by the agency concluded: “The ratings on Abu Dhabi are supported by its strong fiscal and external positions, which afford it fiscal policy flexibility,” adding “the exceptional strength of its net asset positions also provides a buffer to counter the negative effect of oil price swings on economic growth and government revenue, as well as on the external account”.
One of the constraints on Abu Dhabi’s economy is a lack of economic diversity, where the GDP (a broad measure of economic activity) is 55 per cent dependent on oil, and 90 per cent of government revenue is derived from the hydrocarbons sector.
Also, a lack of development of its government institutions, lack of flexibility in monetary policy (with the dirham pegged to the US dollar), and an underdeveloped local bond market were cited by S&P as keeping the emirate from getting the highest long-term sovereign debt rating.
S&P also said its rating view was limited by a lack of transparency in Abu Dhabi’s finances and data about the economy.
The agency said that for this reason it would be changing its assumption about transfers to the government from the Abu Dhabi Investment Authority, the main sovereign wealth fund, and would be revising down its estimate of the government surplus from 10 per cent to 6 per cent of GDP for the 2010 to 2014 period.
Including dividends from the state oil company Adnoc, S&P said it now forecasts the government surplus will average about 2 per cent in the three years to 2018.
The government’s overall current spending, along with aid payments and federal contribution, will decline, but development spending will double this year to 10 per cent of total spending to support economic growth, S&P forecasts.
The agency based its outlook on an assumed average Brent oil price of $55 per barrel this year and $70 in the three years to 2018.
amcauley@thenational.ae
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