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The key driver of the rating confirmation is the economic
and fiscal resilience to lower oil prices

Moody’s changes UAE outlook to negative

ABU DHABI, June 16, 2016

Moody’s recently confirmed the UAE's Aa2 rating and changed the outlook from stable to negative reflecting the lack of clarity around the formulation and implementation of government policies to arrest and reverse the large deficits and the deterioration in the net asset position from lower oil prices.

“A similar action was taken for Abu Dhabi, the UAE's largest emirate, which we assume stands fully behind the federal government of the UAE,” Moody’s Investor Service said in its latest UAE Analysis Update.

The key driver of the rating confirmation is the economic and fiscal resilience to lower oil prices offered by the emirate of Abu Dhabi's very large fiscal buffers in the form of diversified offshore investments, it added.

Over the decade through the first half of 2014, high and rising oil prices led to the UAE consolidated government recording large budget surpluses, resulting in the build-up of very substantial financial and other assets.

The largest portion of the budget surpluses and asset build-up was concentrated in Abu Dhabi (Aa2 negative), which has the bulk of the country’s hydrocarbon resources. The other emirates have varying, weaker fiscal performance.

Among the emirates, in addition to Abu Dhabi, we rate the government of Sharjah (A3 stable).

As oil prices have fallen, the overall economic performance and fiscal metrics of the UAE have deteriorated. “Although we no longer expect a return to fiscal surpluses over the medium term because oil prices are likely to remain at historically low levels in the coming years, the magnitude of budget deficits expected in 2016 and 2017 will not, in our view, materially dent the strong financial position of the UAE government relative to peers,” the analysis said.

The current account, however, is likely to return to balance as early as 2017, supporting external resilience.

This Credit Analysis elaborates on UAE's credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody’s Sovereign Bond Rating Methodology. These factors produce a recommended rating range of Aa2-A1, and the assigned rating is at the top of the range, according to the update. – TradeArabia News Service




Tags: UAE | Rating | Outlook | Moody’s |

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