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S&P upgrades Ras Al Khaimah's outlook

dubai - Agency says emirate's debt will continue on a downward trend

Global ratings agency S&P has upgraded Ras Al Khaimah's outlook from negative to stable on an improved fiscal position. The agency also affirmed the ratings of Abu Dhabi and Sharjah.

"We expect revenue sources from state-owned enterprises that are becoming akin to general government departments will help Ras Al Khaimah post larger fiscal surpluses and lower government debt servicing ratios than previously assessed. We are therefore revising our outlook on Ras Al Khaimah to stable from negative and affirming our ratings at 'A/A-1'. The stable outlook reflects our expectation that the government's fiscal position will remain strong, supported by additional streams of revenue," said Max M. McGraw, primary credit analyst, S&P Global Ratings.

The ratings agency estimated that the general government surpluses average 1 per cent of GDP over 2014-2017. It sees a small increase in revenue from expected value-added tax (VAT) transfers from the UAE federal government.

The agency said gross debt has been declining in absolute terms since 2013. "We estimated debt at 11 per cent of GDP at 2018-end, with a maturing sukuk redeemed in October. We expect debt will continue on a downward trend, absent any external shocks resulting in a change in fiscal policy," S&P analysts said.

They don't see any new borrowing over 2019-2021. "Going forward, it is more likely that GREs will issue debt with a government guarantee."

RAK's real GDP growth is estimated to be 2.5 per cent in 2018, supported by increased capital expenditure in Dubai and Abu Dhabi after a slow 2017. The real GDP is expected to grow 2.3 per cent in 2019 and 3 per cent a year later.

S&P affirmed its 'AA/A-1+' sovereign credit ratings for Abu Dhabi with a stable outlook, thanks to its substantial net asset position which will shield it against almost all possible external shocks.

"The stable outlook on Abu Dhabi reflects our expectation that economic growth will steadily recover and that the country's fiscal position will remain strong over the next two years, although structural and institutional weaknesses will likely persist," said Zahabia S. Gupta, primary credit analyst, S&P.

Following a contraction in the economy last year due to Opec's oil production cuts, S&P had forecast a gradual rise in real GDP on the back of a recovery in oil prices and production and revival in investment.

"We expect economic growth will average 2.3 per cent in 2018-2021. with limited impact from regional geopolitical developments," S&P analysts said.

It predicts Brent to average $65 per barrel in 2019, $60 in 2020 and $55 in 2021.

"We estimate real GDP growth will reach 1.5 per cent in 2018, supported mainly by higher oil production in the second half of the year. We project that growth will rise gradually to 3 per cent by 2021, on the back of increased oil production, higher investment and recovering domestic credit growth, bolstered by higher oil prices and improving demand in the region."

S&P also affirmed Sharjah's rating and stable outlook, predicting the emirate's manufacturing, construction and tourism sectors will support real GDP growth of 2 per cent during 2018-2021.

"The ongoing expansion of economic free zones, including an expansion of the heavy industrial free zone at Hamriyah, and Sharjah's planned re-zoning of industrial and residential areas should support growth. Sharjah should benefit from increased demand from Dubai, stemming from Expo 2020 and Abu Dhabi's new economic stimulus plan," said McGraw.

- waheedabbas@khaleejtimes.com