Moody’s Report: Highlights Business Dynamics Shaping Dubai’s Economic Hub Status

Moody’s agency said in a new report that there has been progress in economic diversification and innovation primarily in the UAE due to the dynamic business environment in Dubai, which has helped solidify its position as a major economic center.

Abu Dhabi (stable Aa2) has also made gradual progress in non-oil sectors such as education, defense, and healthcare through investments by government-linked entities.

Moody’s expects Abu Dhabi and Qatar to register financial surpluses as they have done since 2021, while Kuwait and Oman are likely to manage balanced budgets or modest financial deficits.

The supportive investment for economic diversification in Oman and Saudi Arabia will keep spending above 2021 levels, assuming an average oil price of $83 per barrel in 2024, unchanged from 2023 but higher than the $68 per barrel in 2018-2019, thus implying a supportive financial environment despite oil production restrictions.

Moody’s emphasized that economic activity in Jordan (positive B1), Kuwait (stable A1), Morocco (stable Ba1), Oman (stable Ba1), Qatar (positive Aa3), Saudi Arabia (positive A1), and the UAE (stable Aa2) will benefit from the implementation of government-supported major projects.

Moody’s also noted that its creditworthiness expectations for the Middle East and North Africa region are stable, indicating that investments, business strength, and consumer confidence will support economic activity across most of the region.

Moody’s further projected a real GDP growth average of 2.7% in 2024 for the region compared to its estimate of 1.1% in 2023, reflecting a largely lower decline in oil production.

Excluding oil and gas sector fluctuations, the non-oil real GDP growth for the region would remain broadly stable at 3.1% from its estimate of 3.4% in 2023, with the exception of Iraq (stable Caa1).

Moody’s expects the financial situation to be generally stable, but weaker sovereign entities will continue to face financial and liquidity pressures. Most governments in the Middle East and North Africa are likely to have either slight deficits or surpluses, and overall debt burdens are expected to be stable.

However, high interest rates and limited capital flows to emerging markets will weaken the ability to sustain debt and limit external financing for weak credit fundamentals entities like Egypt (stable Caa1), Lebanon (stable C), and Tunisia (negative Caa2).

Moody’s emphasized that geopolitical developments pose risks, but financial reserves and the ability to manage shocks are significant mitigating factors.

A military conflict in Gaza would have limited credit impact on Middle East and North Africa governments if contained. However, underestimated risks that could escalate the conflict into a multi-front military confrontation throughout the region would have significant negative credit implications on all sovereign entities in the Middle East.

The report also acknowledged that military escalation in Gaza to a regional confrontation involving direct Iranian involvement would be a negative factor. The sharp decline in global demand leading to a severe drop in oil prices would also weaken confidence and economic activity in many parts of the region and could justify a negative outlook.

Conversely, significant global easing of financing conditions that bolstered capital flows to low-rated economies would be a positive factor in mitigating default risks. Sovereign entities with high credit ratings can benefit from increased capital flows that have enabled them to finance economic diversification through intensive capital projects, according to Christian Fang, Vice President and Senior Analyst at Moody’s.

Investments, including long-term project implementation and supportive commodity prices, will keep the economic output strong in most economies. However, the still high interest rates and inflationary pressures in some cases will hinder the ability to bear debt and government liquidity for lower-rated sovereigns. Regional geopolitical tensions represent the main extreme risk.