UAE to return to fiscal surplus in 2019: Moody’s

The United Arab Emirates will narrow its fiscal deficit to 1.9 percent of GDP this year as a result of spending measures and higher oil prices, before returning to surplus level in 2019, Moody’s Investors Service said on Monday.

Further fiscal improvements in Abu Dhabi will support the return to surplus, the ratings agency said in its report.

While the drop in oil prices led to fiscal deficits on a consolidated basis, the UAE posted revenues of about AED68 billion in 2016, with Abu Dhabi providing by far the largest portion.

“As a result, revenue is quite stable, and the central government budget balance fluctuates between small surpluses and small deficits, averaging a near-balanced position,” Moody’s said.

Looking ahead, the hydrocarbon sector is expected to make a smaller contribution to real growth in 2017 because of the recent OPEC decision to freeze production until early next year.

Non-oil growth is also likely to continue its slowdown in 2017, before gradually recovering in 2018-20, the ratings agency said.

Moody’s recently changed the outlook for the UAE to stable, reflecting the Gulf nation’s effective policy response to the low oil price environment, as well as the ongoing recovery in the fiscal and current account balances.

“Further improvements in policy and data transparency at the emirate and UAE level, or a material appeasement in regional geopolitical tensions and a stepped-up diversification effort would exert upward pressure,” said Mathias Angonin, analyst at Moody’s.

However, the UAE’s rating could be downgraded if oil prices stay depressed for a prolonged period, or it exports are hit by escalating regional tensions, he said.

The oil exporter’s main credit challenge relates to weaker economic and fiscal metrics caused by the plunge in crude prices and the nation’s fiscal reliance on hydrocarbons. 

Creditworthiness is also constrained by a lack of institutional transparency, and the absence of public data on the composition of offshore assets and some of the emirates' public finances.