RAM reaffirms UAE’s globaland Asean-scale ratings

KUCHING: RAM Ratings has reaffirmed the UAE’s respective gAA2( pi)/Stable/gP1( pi) and seaAAA( pi)/ Stable/seaP1( pi) global- and Asean-scale sovereign ratings.

The ratings are supported by the country’s considerable reserves, exceptional external performance and ability to implement key measures to ensure the sustainability of its budgets.

The ratings, however, are weighed down by the UAE’s economic structure, which remains highly concentrated on the oil and gas ( O& G) industry, as well as the potential credit risks that may stem from highly indebted government-related entities ( GREs) and the current oversupply in the residential property sector.

“The UAE’s recent fiscal measures include the implementation of the ValueAdded Tax ( VAT) in 2018, along with the restructuring of domestic energy subsidies and the roll-out of taxes for unhealthy consumption goods,” it said in a statement.

“These highlight the government’s intention of improving its long-term fiscal profile. While this is a step in the right direction, implementation concernsmayconstrainimmediate fiscal benefits.

“We expect the UAE’s economic expansion to pick up to 2.6 per cent in 2018, as the government adopts a more supportive fiscal stance amid stronger energy prices. However, lacklustre growth in private consumption and construction activity continue to be a drag on the economy.”

GREs pose a significant contingent risk to the UAE’s ratings given their sizeable debt loads – estimated at 26.7 per cent of GDP in 2017 – and their highly strategic roles in the government’s broader agenda.

While deleveraging and restructuring efforts are ongoing, RAM said the fiscal and macroeconomic risks these entities present remain significant.

“This has been manifested to some degree in recent years as fiscal consolidation, low oil prices and a policy-led shift to reduce GRE debts have increased the frequency of late payments to SMEs in the construction sector.”