Outlook for Abu Dhabi stable on strong fiscal position: Fitch

Fitch Ratings has affirmed Abu Dhabi’s “AA” long term foreign and local currency issuers default ratings (IDR), with a stable outlook on its strong fiscal position.

It has also affirmed “AA” ratings on Abu Dhabi’s senior unsecured foreign currency bonds and “F1+” on the short term foreign currency IDR. The UAE’s Country Ceiling, which applies to the emirates of Abu Dhabi and Ras al-Khaimah, has been affirmed at “AA+,” Fitch added.

“Abu Dhabi's key credit strengths are its exceptionally strong fiscal and external metrics and high GDP per capita, balanced by high dependence on hydrocarbons, a relatively weak policy framework, and weak data availability compared with peers,” Fitch’s analysts said in a note Tuesday.

“Data shortcomings reflect a weak economic policy framework, particularly at the federal level. Authorities have few options for absorbing shocks beyond resorting to fiscal and external buffers,” Fitch added.

Abu Dhabi, however, was better positioned than other oil-exporting states to adjust its finances to an expected 41 percent decline in oil receipts between 2014-2016 without burning through its savings.

Abu Dhabi’s sovereign net foreign assets were at 222 percent of gross domestic product and external debt was at 1.7 percent by the end of 2015.

The UAE’s richest emirate and largest contributor to the federal budget is poised to benefit from the country’s economic and fiscal reforms aimed at increasing non-oil revenues. In August 2015, the UAE removed fuel subsidies and plans to slash remaining subsidies for electricity and gas.

It has introduced water tariffs for UAE nationals in Abu Dhabi and increased prices by between two to five times for foreigners. Electricity prices were raised between 30 percent to 100 percent.

The UAE’s 2015 budget deficit widened to 13.2 percent of GDP from 7.2 percent in 2014, reflecting a drop in oil and natural gas income to 17 percent of GDP from 26.6 percent. The government, however, is expected to finance its deficit through transfer from Abu Dhabi Investment Authority (ADIA), dividends from the state-owned oil company ADNOC, as well as bond issuance.

“We expect the general government deficit to decline to 11.6 percent of GDP in 2016 and 5.3 percent  of GDP in 2017,” Fitch added.

Government deposits in UAE banks fell 16 percent to AED 158 billion in 2015, but remain around 11 percent of GDP. The overall level of liquidity in the banking sector is still high.

“Governance and business environment scores have improved in recent years and are significantly above those of other GCC countries but below the 'AA' median,” Fitch added.