Abu Dhabi's growth set to pick up on fiscal reserves

dubai - S&P affirms emirate's 'AAA+' rating with stable outlook

Abu Dhabi's economic growth will gradually pick up as the fiscal positions will remain extremely strong over the next two years, according to S&P.
A note issued by the ratings agency on Sunday affirmed the emirate's 'AAA+' rating with stable outlook.

"Over the next two years, Abu Dhabi's economy will remain resilient and its fiscal reserves well above 100 per cent of GDP, although structural and institutional weaknesses will likely persist. We continue to expect that the Abu Dhabi government's large net asset position will provide a considerable buffer to mitigate the impact of commodity market volatility on the economy," the ratings agency said.

"We expect that Abu Dhabi will maintain its extremely strong net fiscal asset position above 200 per cent of GDP over 2017-2020. This is one of the highest net government asset ratios among the sovereigns we rate," S&P's analysts said.

The ratings agency forecast GDP growth of two per cent for 2017, inching up to 2.3 per cent next year and then improving further to 2.6 per cent in 2019 and three per cent in 2020.

"We project that Abu Dhabi's real economic growth will recover to about 2.5 per cent on average in the coming years, supported by a gradual increase in oil prices and planned public investments. In addition, we expect non-oil activities in the emirate to face headwinds from tightening fiscal and monetary conditions and increased geopolitical uncertainties in the region," S&P said in the note.

"We forecast the general government budget, which includes revenues from the introduction of value-added tax in 2018, will post surpluses averaging about nine per cent of GDP in 2018-2020. On the revenue side, we project hydrocarbon revenues will improve gradually in 2018-2020. We note that the government has introduced new revenue measures, such as taxes on hotel stays and rents paid by non-nationals, this year. On the spending side, we assume that upcoming budgets will include further measures to contain expenditures in light of the low oil price environment," S&P noted.

How Sharjah fares
While affirming Sharjah's 'BBB+/A-2' with stable outlook, the ratings agency projected a gradual economic recovery for Sharjah in 2017-2020, supported by a recovery in construction, tourism and manufacturing sectors.

It expects Sharjah will reduce its government budget deficits in the next two years and take steps to remain on track if the revenue growth slows down.

Sharjah's nominal GDP is projected to rise from Dh88 billion last year to Dh91 billion this year. It's expected to cross Dh100 billion in 2020, totalling Dh104 billion, according to S&P's forecast.

RAK to post surplus
S&P anticipates that Ras Al Khaimah (RAK) will continue to post fiscal surplus and maintain its low net debt burden in coming years.

While affirming its 'A/A-1' ratings, S&P projected that the emirate's economic performance will accelerate over the forecast horizon to 2020.

"We expect RAK's real economic growth to increase to about three per cent in the coming years, thanks to the increase in business activity ahead of Expo 2020 in Dubai and capital spending in the GCC region," the ratings agency said in a note.

- waheedabbas@khaleejtimes.com