S&P affirms Abu Dhabi ratings; outlook stable
Abu Dhabi, November 26, 2012
Standard & Poor's Ratings Services has affirmed its 'AA/A-1+' long- and short-term sovereign credit ratings on Abu Dhabi. The outlook for the emirate is stable, it said.
The ratings on Abu Dhabi are anchored by the emirate's strong fiscal and external positions, which allow it to deploy fiscal policy flexibly, the agency said.
In addition to providing fiscal flexibility, the exceptional strength of the government's net asset position provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account, it said.
"The ratings are constrained by our view that the emirate has weak political institutions, a lack of transparency and public accountability, and limited availability of timely financial and economic data, particularly regarding government assets," the agency said.
The ratings are also constrained by the contingent liabilities from Abu Dhabi-based government-related entities (GREs), as well as those related to the UAE more broadly. Limited monetary policy flexibility in view of the pegged exchange rate and the underdeveloped domestic bond markets also constrains the ratings.
Abu Dhabi is among the wealthiest economies in the world. The agency estimates the emirate's GDP per capita at $110,000 in 2012.
Real economic growth accelerated to 6.8 per cent in 2011, bolstered by strong performance in the oil sector, with oil production increasing by 9 per cent to 2.5 million barrels per day. Diversification efforts and government public spending have helped sustain non-oil economic growth at 4 per cent, boosted by activity in the financial sector, manufacturing, and transport.
The agency expects real GDP growth in 2012 to be around 5 per cent, premised on 6.4 per cent growth in oil output, together with a 4 per cent growth in non-oil sectors.
Real per capita growth has been negative in 2007-2011, however, with high annual population growth of 7.7 per cent during these years, in part due to the large inflow of migrant workers, many of whom earn far less than most citizens.
Assuming an oil export price of $112 per barrel this year, the fiscal surplus is estimated at 15.4 per cent of GDP, following a surplus of 13.4 per cent of GDP (including petroleum dividends and investment income) in 2011. Revenue growth of 57 per cent accommodated a 25 per cent increase in expenditures, including hikes in development spending, ongoing financial support to GREs, and assistance grants.
Government spending in Abu Dhabi rose by an annualized 19 per cent in 2008-2011 in response to the global credit crisis, and to meet higher social and public infrastructure needs in Abu Dhabi and the northern emirates. Abu Dhabi expects spending in nominal terms to slow this year and be below the amount budgeted for 2012. In 2013-2015 and assuming that oil prices remain around $100 per barrel, the fiscal surplus is expected to average 10 per cent of GDP, helping to further build the emirate's net external asset position, Standard & Poor's said.