The Emirates Maintains Sovereign Ratings with Stable Outlook

“Capital Intelligence, the international credit rating agency, has affirmed the long-term sovereign credit rating for foreign and local currency of the United Arab Emirates at (AA-), while also confirming the short-term sovereign credit rating for foreign and local currency at (A1+), with a stable outlook.

As usual, the ratings by Capital Intelligence reflect the strength of the UAE’s unified financial and external position, amid high expectations of maintaining this strength over the next twelve months.

According to the agency, the stable local political environment, along with the high per capita GDP in the country, as well as the continuous efforts by the UAE government to diversify the economy and improve the unified budget structure, support the quality of these ratings.

The agency stated that ‘the external accounts of the UAE remain extremely strong, with the current account surplus expected to remain very high between 2024 and 2025, averaging 7.6% of GDP.’

This is based on the expectation that hydrocarbon prices will remain at their upper limits during this period, although lower than their peak in 2022, and that non-hydrocarbon tourism and non-hydrocarbon exports will experience strong growth.

Foreign reserves in the country have increased to $166.7 billion in October 2023, from $138.5 billion in December 2022, and are expected to cover approximately 133% of external debt due this year. However, the assets of various sovereign wealth funds in the UAE are much higher than that, although disclosure is limited.

Estimates by Capital Intelligence indicate that the Abu Dhabi Investment Authority (ADIA), the largest UAE sovereign wealth fund, managed approximately $790 billion of assets alone in 2022, and this number is expected to significantly increase in 2023, covering about 1.84 times the total external debt balance of the country in 2024.

While the net creditor position of the UAE is not necessarily an indicator of the individual financial solvency risks of the Emirates, the agency expects oil-rich Emirate of Abu Dhabi to be prepared to support federal institutions, including the central bank, if necessary.

The report highlighted the overall financial strength of the UAE, largely supported by high oil and gas revenues, which are expected to achieve a surplus of 4.2% of GDP in 2023, compared to 10.6% in 2022.

The unified budget surplus is also expected to increase to 4.4% of output in 2024, assuming an average oil price of $75 per barrel, supported by the 9% corporate tax rate on profits exceeding AED 375,000, which was implemented in January of last year.

The report expects the unified government debt balance to slightly decrease to 30% of GDP in 2023, compared to 30.2% in 2022 and 35.9% in 2021.

In the meantime, Capital Intelligence’s readings showed an extremely optimistic economic performance (in the short to medium term) for the UAE, supported by strong domestic activity and effective reforms within the frame of the UAE’s Vision for the future.

Real GDP growth is expected to decrease to 3.5% in 2023 (from 7.4% in 2022), with non-oil sectors expanding rapidly. Real output is also expected to expand at an average of 4.1% in the period 2024-2025, reflecting strong growth in the non-oil sector.

Despite favorable growth expectations, risks could arise from instances of uncertainty related to the impact of global economic slowdown and tense geopolitical conditions.

In this regard, the agency points out that the implementation of the reforms based on the UAE’s Vision for the future could help mitigate the economic risks resulting from dependence on oil and gas.”