London: Fitch Ratings has affirmed Abu Dhabi’s long-term foreign and local currency issuer default ratings (IDR) at AA.
The outlooks are stable. The issue ratings on Abu Dhabi’s senior unsecured foreign and local currency bonds have also been affirmed at AA. The short-term foreign currency IDR has been affirmed at F1+. The UAE Country Ceiling has been affirmed at AA+; this Ceiling also applies to Ras al-Khaimah.
Abu Dhabi’s external sovereign balance sheet is estimated to be the second-strongest of all countries rated by Fitch, behind Kuwait (AA/Stable). Sovereign net foreign assets are estimated to have increased to 178% of GDP at-end 2013, from 151% of GDP one year earlier, sufficient to cover five years of government spending. The repayment of a Eurobond in early 2014 has cut central government external debt to 0.6% of GDP. Sovereign net foreign assets are conservatively forecast to remain around 170% of GDP by end-2016.
Major gaps in the transparency and availability of data remain, despite recent improvements. In particular, a comprehensive external balance sheet is not available and there is less information on the sovereign balance sheet than peers. Few high frequency indicators are disseminated.
Abu Dhabi tends to record large fiscal and current account surpluses. Although fiscal spending rose by around 3% of GDP and revenue fell slightly in 2013, a near-double digit fiscal surplus was recorded once Abu Dhabi National Oil Company dividends and Abu Dhabi Investment Authority (ADIA) investment income are included. Falling oil revenues, in line with Fitch’s price forecasts (see Key Assumptions below), will narrow the surplus each year to 2016. The current account surplus is estimated by Fitch to fall to 7.6% of GDP in 2016 from 16.6% of GDP in 2013.
Real GDP growth is well in excess of peers, at 5.2% in 2013. Non-oil growth was 7.4%, the fastest in seven years, and has averaged 7.9% over the past decade. Non-oil growth should remain buoyant over the forecast period, supported by project spending, a benign external environment and positive domestic sentiment.
Debt of government-related enterprises (GREs) and state-owned enterprises (SOEs) fell to 35.4% of GDP in 2013 (around one-quarter of this is non-recourse), reflecting the authorities’ commitment to containing indebtedness. Explicit contingent liabilities are clearly delineated and GREs and SOEs borrowing plans are controlled by the authorities. Fitch believes Abu Dhabi’s ability to support its GREs and SOEs is not in question. Potential contingent liabilities are unlikely to be material compared with Abu Dhabi’s assets.