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Govt backing key to Abu Dhabi's creditworthiness

Singapore, January 20, 2014

Abu Dhabi's creditworthiness is supported by very strong government finances and the hydrocarbon wealth the emirate enjoys, said a report by Moody's ratings agency.

The Aa2 rating on the UAE capital with stable outlook is primarily supported by the prudent management of the proceeds from its vast hydrocarbon reserves, stated Moody's Investors Service in its review.

In particular, the rating agency highlighted how the proceeds have resulted in structurally-large fiscal and external surpluses, a very low level of direct government debt and the sizable accumulation of sovereign wealth fund assets.

Moody's clarified that the report was an update to the markets and did not constitute a rating action.

The agency pointed out that Abu Dhabi had several other credit strengths including a very high per capita income; a sound policy framework;  political stability and economic resilience to global downturns.

Abu Dhabi's diversification efforts and the outlook for relatively-high hydrocarbon prices have also shored up medium-term growth prospects. In addition, the emirate has strong foreign relations with the major global powers, in particular the US, it stated.

Moody's said the emirate's dependence on hydrocarbon revenue also imposed a constraint on Abu Dhabi's Aa2 rating. A prolonged period of low oil prices would adversely affect the country's fiscal and external positions, it stated.

In addition, the government has potentially large contingent liabilities residing in the debt of its government-related issuers (GRIs), although these pose little near-term risk.

The ratings agency said factors that could exert upward pressure on Abu Dhabi's ratings include further progress in economic diversification, improvements in institutional governance transparency and/or a reduction in regional geopolitical risk.

However, Moody's cautioned that the emirate could experience dwnward ratings pressure in the event of a deep shock to the global oil market or a prolonged decline in oil prices, or the crystallization of contingent liabilities, to the extent that the fiscal surplus comes under significant pressure.-TradeArabia News Service




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