The UAE’s ‘Aa2 stable’ credit profile is supported by an assumption of financial support from the Abu Dhabi government, good infrastructure, a high per capita income and vast reserves of hydrocarbon resources, according to an annual report from Moody’s Investors Service.
“Our stable outlook indicates that the risks to the UAE’s sovereign ratings are broadly balanced,” said Moody’s analyst and report co-author Thaddeus Best.
“Its credit profile is supported by the stable outlook on the Abu Dhabi sovereign rating and upside potential from diversification efforts, but is constrained by lingering government-related entity contingent liabilities and geopolitical tensions.”
The UAE’s reliance on hydrocarbons at an estimated 43 percent of government revenue in 2018 and geopolitical tensions in the region were identified as sources of negative credit pressure.
While real GDP growth is expected to remain modest in 2019 due to OPEC production cuts and subdued non-oil sector activity, Moody’s expects it to accelerate to 3 percent by 2020 supported by the removal of the cuts and looser fiscal policy from Abu Dhabi.
A decline in contingent liability risks or reduced geopolitical tensions would be positive for the UAE’s credit profile, particularly if combined with improvements in policy transparency and data availability.
A downgrade of Abu Dhabi’s rating would, in turn, most likely result in a downgrading of the UAE’s rating.
According to Moody’s, the crystallisation of large contingent liabilities on government balance sheets and an escalation of political risk and subsequent disruptions to trade would also put pressure on the UAE’s rating.
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